Bank of America (NYSE: BAC) is scheduled to report its fiscal Q4 2021 results on Wednesday, January 19, 2022. We expect Bank of America to beat the consensus estimates. The bank posted better than expected results in the last quarter, with the revenues increasing 12% y-o-y to $22.8 billion. This was driven by growth in consumer banking, wealth management, investment banking, and equity trading businesses. While the consumer banking business benefited from the recovery in client activity levels and increase in deposit balances, the wealth management growth was due to an increase in total assets and outstanding loan balances. Similarly, investment banking and equity trading profited from a significant jump in deal volume and higher trading volumes respectively. We expect the same trend to drive the fourth-quarter results.
Our forecast indicates that Bank of America’s valuation is $48 per share, which is at the same level as the current market price. Our interactive dashboard analysis on Bank of America’s Earnings Preview has more details.
(1) Revenues expected to beat the consensus estimates
Bank of America’s revenues decreased 6% y-o-y to $85.5 billion in 2020. It was primarily driven by a drop in consumer banking and wealth management segments, partially offset by an increase in investment banking and sales & trading revenues.
- The consumer banking segment generates roughly 40% of the total revenues. It declined 14% y-o-y in 2020, due to a 12% drop in the net interest income (NII), followed by an 18% decrease in the non-interest income. While the NII decreased due to interest rate headwinds and lower outstanding loan balances, non-interest revenues suffered due to lower consumer activity levels. Further, the NII continued to suffer in the first two quarters of 2021, before improving in the third quarter. That said, the non-interest revenues saw some recovery in 2021. Altogether, the segments’ cumulative nine months revenues in 2021 are at the same level as 2020. We expect the fourth-quarter results to be on similar lines as the Q3.
- The wealth management division contributes close to 20% of the top-line. It suffered a 5% y-o-y drop in 2020 due to lower NII. Notably, the total client balance grew 10% y-o-y to $3.35 trillion in the year. That said, the division has seen some recovery over the first three quarters of 2021, with cumulative revenues increasing 10% y-o-y to $15.3 billion. Further, the total client assets grew 10% y-o-y to $3.69 trillion between December 2020 and September 2021. We expect the same trend to continue in the fourth quarter.
- Similar to its peers, the bank benefited from growth in sales & trading and investment banking businesses in 2020 due to higher trading and underwriting deal volumes. Markedly, the sales & trading and investment banking revenues grew 19% y-o-y and 27% respectively in the year. Further, the same pattern was observed in the first three quarters of 2021. While the cumulative nine-month investment banking revenues grew 23% y-o-y, global markets (sales & trading) increased 4% y-o-y. We expect the fourth-quarter results to be on similar lines.
- Overall, we expect Bank of America’s revenues to remain around $89.6 billion for FY2021.
Trefis estimates Bank of America’s fiscal Q4 2021 revenues to be around $22.54 billion, marginally above the $22.31 billion consensus estimate. We expect the growth in wealth management, consumer banking, and investment banking to drive the fourth-quarter results.
The Fed is likely to introduce multiple interest rate hikes in 2022. This will likely benefit the NII. Further, the investment banking and sales & trading revenues are likely to normalize over the subsequent quarters, with improvement in the economy. Our dashboard on Bank of America’s revenues offers more details on the company’s operating segments along with our forecast for FY2022.
2) EPS is likely to edge past the consensus estimates
Bank of America Q4 2021 adjusted earnings per share (EPS) is expected to be $0.77 per Trefis analysis, just above the consensus estimate of $0.76. The bank’s adjusted net income was down 37% y-o-y to $16.5 billion in 2020, due to a significant build-up in provisions for credit losses. However, the firm has reduced the provisions figure over the first three quarters of 2021. Further, the firm received a positive income tax adjustment related to the revaluation of U.K. net deferred tax assets in 2021. This coupled with the revenue growth, translated into a more than 100% increase in the cumulative nine months adjusted net income to $23.8 billion. That said, we don’t expect the provisions to see a major decrease in the fourth quarter. Overall, Bank of America is likely to report an annual EPS of $3.51 for full-year 2021.
(3) Stock price estimate largely around current market price
We arrive at Bank of America’s valuation, using an EPS estimate of around $3.51 and a P/E multiple of just below 14x in fiscal 2021. This translates into a price of $48, which is at the same level as the current market price.
Note: P/E Multiples are based on Share Price at the end of the year and reported (or expected) Adjusted Earnings for the full year
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|S&P 500 Return||-2%||-2%||108%|
|Trefis MS Portfolio Return||-7%||-7%||264%|
 Month-to-date and year-to-date as of 1/18/2022
 Cumulative total returns since the end of 2016