Bank of America (NYSE:BAC) released first-quarter earnings earlier this week, and the numbers are mostly positive. The bank beat EPS expectations ($0.70 vs. $0.66 consensus) and matched revenue expectations ($23 billion). Furthermore, its net yield grew by 9 basis points since this time last year, to 2.51%, while its efficiency ratio and ratio on assets both also grew. However, trading revenue remains a weak spot, especially compared with the first quarter of 2018. Equity trading revenue tumbled 22% from a year ago and fixed-income revenue dropped by 8%.
In conjunction with the earnings announcement, long-time bull Chris Kotowski of Oppenheimer reiterated his enthusiasm for the banking giant with an Outperform rating and $42 price target.
As always, we like to give credit where credit is due. According to TipRanks, which measures analysts’ success rate based on how their calls perform, Kotowski has a yearly average return of 12.7% and a 71% success rate. Kotowski has an average return of 24.4% when recommending BAC and is ranked #94 out of 5,191 analysts.
While Kotowski says it was a “weak trading quarter where capital markets’ revenues were down 13.0% Y/Y,”, BAC’s 1Q EPS of $0.70 (13% growth since last year) failed to impress the market, “as the company gave somewhat muted guidance on net interest income growth.” The analyst says BAC “guided to ~3% growth in full year net interest income versus our prior model of 4.6%.” Nevertheless, Kotowski says “the offset was that expenses are also tracking lower than we expected and our forward estimates are essentially unchanged…”
Kotowski added, “analysts seemed frustrated that the dynamic way that BAC is managing for profitability does not match the linearity of their models. They seem to want loans and revenues and expenses to all go up and to the right more or less in lock step.” But he counters these analysts, saying, “the reality is of course more complicated. Investors should never lose sight of the fact that there is more than one way to skin a cat. If you are earning a mid-teens ROTCE and your stock is trading at a single-digit P/E, it doesn’t matter so much for intermediate-term EPS whether you are investing in loans or your own stock,” and continues to endorse the stock.
All in all, while there was concern with the the yield curve inversion last month, this earnings report provides a sense of relief. TipRanks analysis of 10 analyst ratings shows a consensus Moderate Buy rating, with six analysts Buying and four Holding. The average price target among these analysts stands tall at $34.50, which reflects a 15% rise from current levels. (See BAC’s price targets and analyst ratings on TipRanks)