Bank of America Earnings Preview – First Quarter 2009

Bank of America [[BAC]] is scheduled to report first quarter 2009 results before the market opens on Monday, April 20. Based on our analysis, we at are expecting BAC to report disappointing results that fail to meet Wall Street’s consensus expectations.


Analyst Expectations

We are forecasting revenues of $25.80 billion and EPS of ($.05). This would represent a 52% increase in revenues from last year’s $17.0 billion in the same period. The current analyst consensus estimates calls for revenues of $26.92 billion and $.03 EPS.


Last quarter, Bank of America posted a loss due to escalating credit costs, significant write downs and trading losses in their capital markets businesses. While 2008 was a challenging year, the financial environment deteriorated significantly over the last few months of the year. While there has been some glimmer of optimism in the markets over the last few weeks, the reality is that the financial environment has shown little to no improvement.


The American consumers continue to face the realities of falling house prices, declining stock portfolios, and escalating unemployment. All of which bodes poorly for the major financial institutions such as Bank of America with their large exposure to home, auto and credit cards loans.


Share Performance

Bank of America’s shares are down 26% since the beginning of the year, although they have skyrocketed up 230% since closing at $3.14 on March 6, 2009. In 2008, BAC’s shares plummeted almost 66% as the stock badly underperformed the 34% drop in the Dow Jones index.



Shares are now trading at 8x consensus 2010 EPS estimates. This is below the relative valuations of their peer group, reflecting the greater risk exposure that Bank of America faces. While BAC has enjoyed a tremendous rally over the last few weeks, it is likely that the shares will see a pullback in the coming weeks and we would expect the shares to remain very volatile throughout 2009.


Recommendation: Hold with an $8 price target.


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