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Did Bank of America (BAC) Deliver the Goods in Q1? Nomura Analyst Sheds Light

Nomura's Steven Chubak stands by BAC after a solid, albeit not stellar first quarter performance for 2018- whose best strengths were revenue and credit.


Homeruns for Bank of America Corp (NYSE:BAC) boil down to revenues and credit when looking at a first quarter print that yielded a slight core beat against the Street. Nomura analyst Steven Chubak bets on this banking giant, but says while the results proved “good,” they also were “not great.”

That said, the analyst commends positive revenue momentum and reiterates a Buy rating on BAC stock with a $37 price target, which implies a close to 23% upside from current levels.

For the first quarter of 2018, BAC posted $0.62 in EPS, achieving Chubak’s estimate and beating out the Street’s $0.59. When factoring in a roughly $0.02 tax benefit, the company’s core beat of roughly a cent soared on better NII coupled with +$0.02 from fee income and +$0.01 in lesser credit expenses- taking advantage from a slight offset from better efficiency of -$0.01. Revenue hit $23.1 billion and net interest income landed at $11.8 billion for the quarter.

However, “Other key metrics were mixed, reflecting strong deposit growth (+3% YoY), decent loan growth (+2% YoY), continued strong credit (flat NCOs, declining NPLs), and declining capital ratios (down 20-30bps QoQ; as expected given AOCI headwinds),” notes the analyst.

“Overall, trading revenues were up +1% YoY vs. +4% reported at peers, but this was largely anticipated given BAC’s heavier gearing to spread (vs. macro) product. Total IB revenues of $1.4bn were in line with our estimate, with softer M&A ($296mn, -27% YoY) and DCM ($827mn, -11% YoY) offsetting more resilient ECM ($314mn, +1% YoY),” adds the analyst.

BAC’s total expenses climbed to $13.9 billion, hovering above the analyst’s and consensus estimates modeling for $13.8 billion, with efficiency of 60% ahead of the analyst’s 59% forecast. Yet, Chubak explains, this “could drive some questions on the firm’s $53bn expense target for 2018.”

Overall, “While revenues and credit continue to surprise positively vs. Street expectations, the setup here is a bit tricky, as BAC remains a popular long and the results can best be described as ‘good, not great.’ Given the expense miss, any reaffirmation of the $53bn expense target could alleviate such concerns, but we expect share performance to be more in line given today’s result,” asserts the analyst.

Steven Chubak has a very good TipRanks score with a 76% success rate and a high ranking of #145 out of 4,771 analysts. Chubak realizes 24.3% in his annual returns. Notably, investors who follow Chubak’s recommendation on BAC will earn 37.6% in average profits on the stock.

TipRanks indicates this banking giant has won predominantly bullish attention on Wall Street. Out of 7 analysts polled in the last 3 months, 6 rate a Buy on BAC stock while just 1 maintains a Hold. The 12-month average price target stands at $35.00, marking 16% in return potential for the stock.