Bank of America Earnings Preview: Second Quarter 2009

Bank of America [[BAC]] is scheduled to report their second quarter 2009 results before the market opens on Friday, July 17. Based on our analysis, we at are expecting BAC to report better than expected results that exceed Wall Street’s consensus expectations.


Analyst Expectations

We are forecasting revenues of $31.98 billion and EPS of $.34. This would represent a 55% increase in revenues from last year’s $20.63 billion in the same period. The current analyst consensus estimates calls for revenues of $31.69 billion and EPS of $.26.


Optimism is building ahead of Bank of America’s second quarter results as analysts scramble to increase their earnings projections. While we expect BAC to report better results than Wall Street is expecting, we also anticipate credit losses will continue to spike higher. Mounting job losses and reduced incomes will continue to weigh on Bank of America’s consumer portfolio.


While the real estate markets may be showing some glimmers of stabilization, we view the biggest risk over the next 18 months could come from credit card defaults. With escalating unemployment, falling house prices and shrinking investment portfolios leading to a spike in consumer defaults which will limit profitability over the next few quarters.


Share Performance

Since the beginning of the year, Bank of America’s shares are down 14%, but the stock has skyrocketed up 285% since closing at $3.14 on March 6, 2009. In 2008, BAC’s shares fell 66% and badly underperformed the 34% decline in the Dow Jones industrial average.



Shares are now trading at 12x consensus 2010 EPS estimates. This is inline with the relative valuations of their peer group. Despite the recent rally, we would recommend buying Bank of America as a speculative play and believe the stock is well positioned to move higher if credit losses can be contained.  


Recommendation: Buy with a $15 price target.


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