Should You Buy Bank of America Shares Ahead of its Q4 Earnings?

One of the biggest banks in the United States, Bank of America BAC, is scheduled to announce fourth-quarter 2024 results on Jan. 16, before the opening bell. Among BAC’s close peers, JPMorgan JPM and Citigroup C are slated to release quarterly numbers on Jan. 15. Stay up-to-date with all quarterly releases: See Zacks Earnings Calendar.Bank of America’s third-quarter performance was decent amid industry-wide operating challenges. This time, we believe the company’s performance will be similar to the prior quarter. The Zacks Consensus Estimate for fourth-quarter revenues of $25.14 billion suggests 14.5% year-over-year growth.In the past seven days, the consensus estimate for earnings for the to-be-reported quarter has been revised 1.3% upward to 78 cents. This indicates an 11.4% rise from the prior-year quarter, as relatively lower interest rates are likely to have supported BAC’s bottom-line growth.Estimate Revision Trend Image Source: Zacks Investment ResearchBank of America has an impressive earnings surprise history. The company’s earnings outpaced the Zacks Consensus Estimate in each of the trailing four quarters, with the average beat being 4.54%.Surprise History Image Source: Zacks Investment ResearchMajor Factors to Impact Bank of America’s Q4 PerformanceNet Interest Income (NII): Last year, the Federal Reserve cut the interest rates by 100 basis points (bps) to 4.25-4.5%. Being one of the most interest rate-sensitive among its peers, Bank of America’s NII is likely to have benefited from relatively lower rates. Also, clarity on the Fed’s rate cut path and the stabilizing macroeconomic backdrop provided support to the lending scenario. Per the Fed’s latest data, the demand for commercial and industrial, real estate and consumer loans was solid. Hence, BAC is expected to have witnessed a decent rise in loan demand.Based on the assumptions of two rate cuts in the quarters, the company expects NII to grow sequentially and be $14.3 billion or more. Further, loan demand is projected to be robust driven by solid pipelines in commercial loans.The Zacks Consensus Estimate for NII of $14.20 billion suggests a 1.7% increase from the last quarter. Our estimate for NII is $14.25 billion.Investment Banking (IB) Fees: Global mergers and acquisitions (M&As) in the fourth quarter witnessed marked improvement after weakness in 2023 and 2022. Both deal value and volume were solid during the quarter, driven by solid financial performance, buoyant markets, interest rate cuts and a strong U.S. economy. Also, the potential easing of regulatory oversight on M&As by the incoming Trump administration fueled deal-making activities. Yet, lingering geopolitical issues were a concern. So, Bank of America’s advisory fees are likely to have recorded a decent rise.Further, the IPO market saw signs of cautious optimism driven by market volatility, geopolitical challenges and global monetary policy easing. The remarkable equity market performance resulted in a solid activity in follow-up equity issuances. Further, bond issuance volume improved on favorable economic conditions and corporate spreads at near historical lows despite seasonally low volumes in December. So, BAC’s underwriting fees (accounting for almost 40% of total IB fees) are expected to have witnessed decent improvement during the to-be-reported quarter.The company projects IB revenues to be up 25% year over year.The Zacks Consensus Estimate for IB income of $1.48 billion indicates a rise of 5.4% from the prior quarter. We expect IB income to be $1.43 billion.Trading Income: Client activity and market volatility were solid in the fourth quarter. The likelihood of a solid economy, gradually slowing inflation and easing monetary policy drove the client activity. Hence, BAC is likely to have recorded a decent performance in trading revenues this time.Management projects trading revenues grow at mid-to-high single digits from the prior-year quarter. The Zacks Consensus Estimate for total sales and trading revenues of $4.07 billion suggests a 17.4% fall sequentially. Our estimate for the metric is $4.06 billion.Expenses: While BAC managed expenses prudently in the past, expansion into newer markets by opening financial centers and efforts to digitize operations and upgrade existing financial centers are expected to have kept non-interest expenses elevated in the to-be-reported quarter.Management expects non-interest expenses in the third quarter to be relatively stable sequentially.Our estimate for non-interest expenses stands at $16.6 billion.Asset Quality: Bank of America is expected to have set aside a substantial amount of money for potential bad loans (mainly in commercial & industrial and commercial real estate loan portfolios), given the expectations of higher for longer interest rate backdrop. Our estimate for provision for credit losses is pegged at $1.57 billion, indicating a rise of 1.6% on a sequential basis.The Zacks Consensus Estimate for non-performing loans (NPLs) of $6.3 billion implies an 11.9% jump sequentially. Also, the consensus estimate for non-performing assets (NPAs) of $6.34 billion suggests an 8.9% rise. Our estimates for NPLs and NPAs are pegged at $6.23 billion and $6.34 billion, respectively.What Our Model Unveils About Bank of America’s Q4 EarningsOur proven model doesn’t predict an earnings beat for Bank of America this time. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of an earnings beat. That is not the case here, as you can see below.Bank of America has an Earnings ESP of -1.09%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.It carries a Zacks Rank #3 at present. You can see the complete list of today’s Zacks #1 Rank stocks here.BAC’s Price Performance & ValuationAfter a solid start to 2024, where BAC stock was among the top five banks on the S&P 500 Index, it seems to have lost momentum. In the fourth quarter, BAC shares have been up only 10.7%, underperforming its close peers – JPM and C. On the other hand, the stock outperformed the S&P 500 Index. Q4 Price Performance Image Source: Zacks Investment ResearchLet’s look at the value Bank of America offers investors at current levels. The stock trading at a 12-month trailing price-to-tangible book (P/TB) of 1.76X. This is below the industry’s 2.61X. This shows the stock is inexpensive currently.Price-to-Tangible Book Ratio (TTM) Image Source: Zacks Investment ResearchBAC stock is trading at a discount compared with JPM, which has a P/TB of 2.65X. On the other hand, Citigroup has a P/TB of 0.82X, making it inexpensive compared with BAC.Evaluating Bank of America Stock Before Q4 EarningsThe interest rate pressure that Bank of America has faced since 2023 has subsided to some extent, and risks surrounding deposit outflows have abated. With interest rates coming down as the central bank eases monetary policy, the company is likely to benefit. The industry-wide lending scenario is also expected to improve and the company will gain from the same.    Bank of America’s aggressive branch expansion across the United States as part of a broader strategy to solidify customer relationships and tap into new markets will drive NII growth over time. The company announced plans to open more than 165 new financial centers by 2026-end. This will also help capitalize on cross-selling opportunities over the long term. Nonetheless, BAC continues to face adverse impacts from prolonged higher rates, leading to high deposit costs. Also, the volatile nature of the capital markets business is expected to make fee income growth challenging. Mounting operating expenses and weak asset quality are other headwinds.While Bank of America's prospects remain promising as the banking industry regains momentum, investors should not rush to buy the stock. Those interested in adding it to their portfolios might be better off waiting until after the release of quarterly numbers for clarity and a potentially attractive entry point.Those who already have the BAC stock in their portfolio can hold on to it because it is less likely to disappoint over the long term.7 Best Stocks for the Next 30 DaysJust released: Experts distill 7 elite stocks from the current list of 220 Zacks Rank #1 Strong Buys. They deem these tickers "Most Likely for Early Price Pops."Since 1988, the full list has beaten the market more than 2X over with an average gain of +24.1% per year. So be sure to give these hand picked 7 your immediate attention. See them now >>Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report Bank of America Corporation (BAC): Free Stock Analysis Report JPMorgan Chase & Co. (JPM): Free Stock Analysis Report Citigroup Inc. (C): Free Stock Analysis ReportTo read this article on Zacks.com click here.Zacks Investment ResearchWeiter zum vollständigen Artikel bei Zacks Weiter zum vollständigen Artikel bei Zacks