Bank of America’s [BAC] share price has steadied following the volatility of the spring and early summer — this consistency, along with US consumers gradually beginning to spend more money, has given the company a confident outlook as it prepares to publish its third quarter earnings. This positivity follows a period Brian Moynihan, CEO of Bank of America, called “the most tumultuous period since the Great Depression”. So, what’s next?
After nearly halving in value in the month of March, reaching $17.83 on 23 March, Bank of America’s share price had recouped over a third of those losses by the second week of April — but aside from a brief spike in June, it has averaged circa $24 since.
Bank of America’s share price was as high as $26.73 on 11 August, but gradually declined over the next six weeks, reaching $23.26 on 23 September before starting to climb again and hitting $25.68 on 12 October.
What will happen to Bank of America’s share price when it reveals its third quarter earnings on 14 October?
Revising the forecast for Bank of America’s share price
As shelter-in-place restrictions eased in the US over the late summer, consumer spending recovered. Although this was not quite to pre-coronavirus pandemic levels, there have been notable increases in spending, namely on vehicles, furniture, home renovations and electronics. This has prompted Bank of America to revise its Q3 growth forecast from 27% to 33% — significantly above the 25.9% Wall Street average.
Bank of America’s share price has also benefitted from the bank’s cutting back on the near-$10bn it set aside at the start of the pandemic to cover potential writedowns as businesses and individuals default on their loans. In fact, it ended up writing off just $2.2bn in the first half of the year.
Moynihan told the recent Barclays Global Financial Services Conference that the total volume of loans in deferral had significantly reduced from $55bn at the pandemic’s peak to around $15bn, while credit card deferrals are down from a COVID-19-fuelled high of $5.7bn to just $500m.
Nevertheless, the Q3 earnings report, although likely to encourage cautious confidence, will still generally reflect a 12-month period that Moynihan suggested is the most dramatic in almost a century.
Analysts predict an average $20.81bn revenue, down just over 9% on the $22.95bn of the same quarter last year, according to a survey of eight analysts polled by Yahoo Finance. The average EPS estimate from 23 analysts is $0.49, $0.07 down on the actual EPS of a year ago, but $0.12 up on Q2’s $0.37 actual, which was itself 37% higher than the estimated $0.27.
The outlook on Bank of America’s share price
Bank Of America’s share price is predicted to rise 9% to $28 over the next 12 months according to the median estimate of 24 analyst forecasts, reports CNN Business.
The highest estimate is $37 and the lowest $22. The consensus among 27 analysts is currently Buy, with 15 giving this rating, one suggesting an Outperform and the remainder advising Hold.
“Of the big-name financial stocks, BAC may offer the best value,” said David Moadel, chief analyst and opportunity researcher for Portfolio Wealth Global. He cited Bank of America’s P/E (TTM) ratio of $12.27 which, he added, “compares favourably to the company’s banking sector peers.
“Looking at it from another angle, we can observe that BAC stock’s 52-week ratio is $17.95 to $35.72. This suggests that the stock still has room to run to the upside.”
Moadel suggests Bank of America’s share price may have been kept low in part by the bank’s diminished lending activity — Moynihan told the Barclays conference that the bank’s Q3 net interest income was likely to be down by around £700m.
Moynihan is also anticipating more stability for Bank of America’s share price by the end of the year. This week he doubled down on a pledge he made back in April not to lay off any staff in 2020 and clearly anticipates calmer waters over the next few months.
“It looks like 3Q will be the bottom,” he said. “It’ll take another several quarters before it really starts growing again. But right now, it looks like this quarter could be the trough, based on everything I see.”