Bank of America (NYSE: BAC) is scheduled to report its fiscal Q2 2022 results on Monday, July 18, 2022. We expect Bank of America to top the consensus estimates of revenues and earnings. The bank outperformed the street expectations in the last quarter, with the revenues increasing 2% y-o-y to $23.2 billion. It was driven by growth in consumer banking, wealth management, and corporate & commercial banking divisions. The units mainly benefited from growth in the net interest income (NII) driven by a higher deposit balance and a slight increase in the net interest margin. That said, both the investment banking and sales & trading businesses reported negative growth in the quarter. In addition to this, the profitability numbers further suffered due to an unfavorable increase in the provisions for credit losses. We expect the same trend to continue in the second quarter.
Our forecast indicates that Bank of America’s valuation is $48 per share, which is 57% above the current market price of $31. 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 increased 4% y-o-y to $89.1 billion in 2021. It was primarily driven by growth in investment banking and wealth management units, supported by some improvement in the sales & trading and consumer banking revenues.
- The bank derives close to 40% of the total revenues from the consumer banking division. The segment grew 2% y-o-y in 2021, mainly due to higher non-interest income, which benefited from improvement in consumer activity levels. Further, it increased by 9% in the first quarter of 2022 driven by higher NII. We expect the same trend to drive the second-quarter results.
- The wealth management division contributes close to 20% of the top line. It grew 12% y-o-y in 2021. Further, the same pattern was observed in Q1 2022, with the segment’s revenues increasing by 10%. We expect the same trend to continue in the second quarter.
- The sales & trading and investment banking businesses posted strong growth in 2020 and 2021. However, they reported negative growth in Q1. We expect the second-quarter results to be on similar lines.
- Overall, we estimate Bank of America’s revenues to remain around $94.2 billion for FY2022.
Trefis estimates Bank of America’s fiscal Q2 2022 revenues to be around $23.47 billion, 3% above the $22.78 billion consensus estimate.
2) EPS is likely to beat the consensus estimates
Bank of America Q2 2022 adjusted earnings per share (EPS) is expected to be $0.82 per Trefis analysis, 5% above the consensus estimate of $0.78. The bank’s adjusted net income improved 85% y-o-y to $30.6 billion in 2021. It was because of a significant drop in the provisions for credit losses from $11.3 billion to -$4.6 billion. However, the firm increased its provisions in the first quarter of 2022 to counterbalance the higher credit risks. Notably, the credit risk increased due to factors like the Russia-Ukraine crisis, supply chain issues, aggressive interest rate hikes by the Fed, and record-high inflation numbers. It led to a 13% y-o-y drop in the adjusted net income. We expect the second-quarter results to be on similar lines. Overall, Bank of America is likely to report an annual EPS of $3.33 in FY 2022.
(3) Stock price estimate is 57% above the current market price
We arrive at Bank of America’s valuation, using an EPS estimate of around $3.33 and a P/E multiple of just below 15x in fiscal 2022. This translates into a price of $48, which is 57% above 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
With inflation rising and the Fed raising interest rates, Bank of America has fallen 31% this year. Can it drop more? See how low can Bank of America stock go by comparing its decline in previous market crashes. Here is a performance summary of all stocks in previous market crashes.
|S&P 500 Return||1%||-20%||71%|
|Trefis Multi-Strategy Portfolio||2%||-21%||210%|
 Month-to-date and year-to-date as of 7/14/2022
 Cumulative total returns since the end of 2016
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