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Bank of America earnings preview

Bank of America will announce their third-quarter results on Friday 13th of October.

Analysts are expecting revenue of $21.93 billion, and earnings per share (EPS) of 45 cents, and these represent a rise of 0.3% and 10.9% respectively.

In the last quarter the company managed to attract more deposits at a lower rate of interest, and those funds were used to finance loans. The net interest income, which measures the difference money it earned on lending and money paid out on deposits rose by 8.6% to $10.99 billion, but missed expectations.

The prospect of an interest rate hike from the Federal Reserve in December should benefit the entire US banking system, but it particular bank of America as they are regarded one of the most interest rate sensitive in the banks in the country. The retail banking division would welcome higher rates, and so would the trading division.

The finance house has witnessed 9% drop in sales and trading revenues – besting forecasts slightly. The fixed income division saw a 14% drop in revenue. Bank of America aren’t as dependent on the financial markets for profits unlike other banks, so that double digit drop in bond dealing earnings isn’t too worrying.

Bank of America spends 60 cents for every $1 it earns in revenue it earns, and that is down from 63 cents last year, and it is keen to keep pushing it lower. The bank is keeping an eye on costs by trimming the headcount in its technology and operations teams, this fits in with its wider plans to raise financial targets. Brian Moynihan, the company’s CEO understands the importance of keeping expenses in check as revenues can fluctuate. 

The investment and wealth management department registered a record profit margin, and the majority of the business is in rude health. 

Equity analyst are bullish on the stock, and out of the 30 ratings on the company, 22 are buys, 7 are holds and 1 is a sell. The average price target is $27.50. 

Bank of America derives 45% of its revenue from retail banking, and it is holding up relatively well in relation to the drop in trading revenue – which was a major theme of the last reporting season. Last week the stock hit a level not seen since September 2008, so investors are clearly bullish on the bank.

The stock has been in a solid upward trend since early 2016, and it if exceeds the recent high of $26.29, it could target $30. Support could come into play at $22.75. 

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