Bank of America Corporation (NYSE: BAC) is scheduled to report its third quarter 2015 operating results at 8:30 am, tomorrow, Wednesday, October 14th. The bank will broadcast the conference call on their website. Here are five things investors need to know.
1. Bank of America’s Current Story
Bank of America is seen moving from a period where it spent great deal of time and capital dealing with the fall-out from the company’s involvement in the 2008 financial crisis and its exposure to subprime paper, to a period where management is able to begin “focusing on growth and revenue,” according to Smarter Analyst.
Bank of America was the recipient of $45 billion under the Troubled Asset Relief Program (TARP), which it was reported to have fully paid back in 2009, according to the New York Times. Apparently, other actions continued to dog the bank until recently.
Twenty-nine analysts have published estimates for per BAC share earnings for the third quarter. The low estimate is $0.29 and the high is $0.38. The consensus among the 29 is $0.33. That would represent growth of 925.0 percent, compared with the third quarter of 2014.
Bank of America beat EPS estimates by 25.0 percent in the second quarter of 2015, and missed by 19.4 and 6.9 percent in the fourth quarter of 2014 and first quarter of 2015, respectively. The fact that the bank misses some quarters and beats other quarters suggests that Bank of America management is unconcerned with the views of Wall Street, which could be viewed as a good thing.
Over the past 90-day period, the consensus BAC EPS view has fallen from $0.35 to today’s $0.33 and ranged between $0.33 and $0.36.
Current BAC EPS estimates are calling for 44 percent growth for the fourth quarter of 2015 and 291.7 percent growth for the full 2015-year. Earnings growth is seen tapering significantly to 12.5 percent in 2016 and 8.6 percent annually over the coming five years. Increases to 2015 EPS forecasts would have the potential to boost BAC shares.
3. Revenue of $20.8 Billion Is Expected.
Of the 17 analysts who publish third quarter 2015 revenue estimates for Bank of America, the consensus is $20.8 billion. The low estimate is $19.8 billion and the high estimate is $21.7 billion. If the company is able to meet the consensus it would represent a drop of 3.1 percent from the third quarter of 2014.
Bank of America is expected to generate $21.1 billion in sales in the fourth quarter, $85.4 billion for the full 2015-year, and 88.0 billion in 2016.
The sales numbers represent 11.1 percent growth for fourth quarter, and 0.3, and 3.0 percent growth for the full 2015- and 2016-years, respectively. Bank of America offering guidance above these figures could potentially cause BAC shares to rally.
4. Bank of America and The Entire Banking Sector Are Hugely Levered
Much like the securitized subprime mortgage paper that caused Bank of America headaches in 2008, some have reported that securitized credit card debt has the potential to cause Bank of America future headaches, reports Credit Cards. The Economist suggests that securitization may be making a return “from the dead.”
Here is what is evident. Bank of America is reported to be sitting on $494.7 billion in cash and to hold $539.9 billion in debt, spread across dozens of different issues, according to Yahoo Finance, giving Bank of America a debt to equity ratio of 124 percent, according to Morningstar. Banking industry peers have an average debt to equity of 115 percent. Some might argue that Bank of America’s EPS growth rate justifies these debt numbers, though the relative strength of BAC shares over the past 12 months would not seem to agree with this argument.
Going into the third quarter report, Bank of America had a trailing twelve month operating margin of 30.7 percent and a profit margin of 12.4 percent. The bank has a return on equity of 4.7 percent and $47.04 in cash per share.
Shares of Bank of America, BAC, are down 13.25 percent in 2015 compared to a decline of 3.88 percent for the Dow Jones Industrial Average (^DJI). BAC shares are down 6.05 percent over the past 12 months and up 35.66 percent over the past five years, compared with down 5.01 and up 53.89 percent for the Dow for the same respective periods.
BAC shares closed at $15.52 yesterday and sit in the lower end of their 52-week range of $14.60 to $18.48.
Major institutional holders of BAC stock include index fund giant, the Vanguard Group, Inc.; mutual fund giant, FMR, LLC; State Street Corporation; and BlackRock Institutional Trust Company.