Bank of America Earnings Preview: Why Bank of America Is Likely To Miss FY19 Revenue Expectations

by Trefis Team
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Bank of America (NYSE: BAC) is slated to release its Q4 and full-year 2019 results on Wednesday, January 15. The diversified banking giant is the second-largest U.S. bank after JPMorgan in terms of assets. Trefis details earnings expectations from Bank of America in an interactive dashboard, parts of which are highlighted below. We believe that Bank of America’s FY 2019 revenues and earnings will miss consensus. We expect revenues to decrease marginally year-on-year to $91.2 billion due to an expected drop in sales & trading revenues and due to the Fed’s rate cuts. Our estimate is slightly lower than the consensus estimate of $91.6 billion.

The EPS figure is likely to have improved to $2.70 from $2.61 in 2018 thanks to the expected drop in outstanding shares despite a reduction in margins from higher expenses. Our estimate for Bank of America’s EPS is slightly below the consensus estimate of $2.71. Further, we believe that weaker-than-expected revenues and earnings for FY 2019 should result in a slight decline in Bank of America’s stock price once earnings are announced. That said, However, it should correct itself in the near term, as our forecast indicates that Bank of America’s valuation is $35 a share, which is roughly at the same level as its current price.

 (1) Bank of America’s revenues would have decreased to $91.2 billion in 2019; slightly below consensus estimates

  • Trefis estimates Bank of America’s 2019 revenues to be $91.2 billion, slightly below the consensus estimate of $91.6 billion.
  • Although Bank of America’s Total Revenue has grown 9% from $83.7 billion in 2016 to $91.2 billion in 2018, we expect revenues to have decreased by ~$90 million in 2019.
  • While Consumer Banking, Wealth Management, and Corporate & Commercial Banking business are expected to register positive growth in the year, the decline in Sales & Trading and All Other divisions would more than offset their impact on the top line.
  • Consumer Banking business, which consists of Deposits and Consumer Lending sub-segments and offers credit, banking, and investment products and services, is expected to contribute $38.2 billion to Bank of America’s 2019 revenues, making up 42% of the company’s $91.2 billion in revenues for 2019.
  • Although Wealth Management has grown at an average annual rate of 5% over the last two years, we expect it slow down over the coming years due to lower fees as % of client balance and meager growth in wealth management loans. Overall, wealth management revenues are likely to increase from $19.3 billion in 2018 to $19.7 billion by 2019.
  • Further, Corporate & Commercial banking revenues are expected to add $300 million by 2019 driven by growth in treasury client assets, enabling the segment to touch $16.8 billion.
  • On the other hand, Sales & Trading revenues, which have fluctuated over the last three years due to volatile market conditions, are expected to drop by 6% in 2019 due to a weak bond market scenario.
  • Notably, we expect Bank of America’s revenue growth to slow down in the coming years, leading it to cross $92 billion by 2020.

Our interactive dashboard analysis, How Does Bank of America Make Money?, provides an in depth view of the company’s revenues along with our forecasts and a comparison of trends with peers JPMorgan, Citigroup and Wells Fargo.

 

(2) EPS expected to increase 3% from $2.61 in 2018 to $2.70 in 2019, although it is likely to narrowly miss consensus estimates

  • Bank of America’s 2019 earnings per share (EPS) is expected to be around $2.70 per Trefis analysis, marginally lower than the consensus estimate of $2.71 per share
  • An expected drop in outstanding shares by 9% will drive EPS growth in 2019, partially offset by stagnant revenues and a 2% increase in expenses as compared to the previous year.
  • We forecast Bank of America’s Revenues to marginally drop in 2019, whereas Expenses are expected to increase (-0.1% vs. 2%).
  • This will result in a 180 bps decline in Bank of America’s Net Income Margin figure from 29.3% in 2018 to 27.5% in 2019.
  • For 2020, we believe that slight growth in revenues coupled with lower expenses will result in the adjusted net income margin figure increasing to 28.8%

Our interactive dashboard analysis, How Does Bank of America Spend Its Money, provides an in-depth view of the company’s expenses.

 

(3) Stock price estimate is almost same as the market price

  • A trailing P/E multiple of 12.9x looks appropriate for Bank of America’s stock, which is marginally higher than the current implied P/E multiple of 12.8x
  • Trefis’ forecast for Bank of America’s 2019 earnings is slightly lower than the market expectations, however the P/E multiple is marginally ahead. This gives us a fair value of $35 for Bank of America’s stock which is around the current market price.

Additionally, you can input your estimates for Bank of America’s key metrics in our interactive dashboard for Bank of America’s pre-earnings, and see how that will affect the company’s stock price.

 

See all Trefis Price Estimates and Download Trefis Data here

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