Bank of America Earnings Preview: Uncertainty Continues

Bank of America [[BAC]] is scheduled to report their fourth quarter 2009 results before the market opens on Wednesday, January 20, 2010. Based on our analysis, we at are expecting BAC to report slightly better than expected quarterly results that will exceed Wall Street’s consensus expectations.


Analyst Expectations

We are forecasting revenues of $27.55 billion and EPS of ($.46). This would represent a 1% sequential decline in revenues from last quarter’s $26.04 billion. The current analyst consensus estimates calls for revenues of $27.37 billion and EPS of ($.50).


Earnings Analysis

Wall Street still appears to be quite skeptical of Bank of America’s ability to get back on the right track in the near term. While BAC’s $45 billion TARP repayment is certainly a very positive move for the bank, it will certainly impact their fourth quarter results. The decision to promote Brian Moynihan to CEO should also contribute to stabilization at the financial giant. However, consensus opinion is that BAC “settled” for Moynihan after several of their preferred targets turned down the job opportunity.


The fact that multiple candidates weren’t interested in the CEO position is very indicative of the tremendous headwinds still facing Bank of America. While there have been some positive signs in the housing markets recently their still remains a great deal of uncertainty regarding how sustainable these trends are. Interest rates have been climbing over the last month and many experts anticipate mortgage rates will increase significantly once the Fed stops purchasing mortgage-backed securities. This scenario would certainly have a negative impact on Bank of America considering they are the nation’s largest lender and already are dealing with a tremendous inventory of foreclosed homes.


Stock Performance

In 2009, Bank of America’s shares managed to gain 7%, but underperformed the 19% gain in the Dow Jones industrial average. However, BAC’s shares staged a massive recovery from their low of under $3 in early March to reach over $18 in October.  



Bank of America’s stock is now trading at 20x consensus 2010 EPS estimates. This is a premium to the relative valuations of their peer group. While Bank of America may eke out a slight beat over Wall Street’s low earnings expectations, we believe there still remains significant risk for this stock.


Recommendation: Hold with a $18 price target


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