Will Bank of America share price rise on Q3 earnings?

Despite a low-interest-rate environment, Bank of America [BAC] sustained growth because of its digital operations, with 40.5 million active digital users.

“Consumer spending has significantly surpassed pre-pandemic levels, deposit growth is strong, and loan levels have begun to grow,” said Brian Moynihan, the chairman and chief executive of Bank of America.

Buoyed by the growth in consumer spending, wealth management and investment banking as the coronavirus pandemic eases Bank of America’s share price has climbed 79.3% over the last 12 months higher than peers Citigroup [C], up 67.6% and JP Morgan [JPM] up 71.4%.

Investors will see if the Bank of America share price is keeping pace with its peers when it releases its third-quarter earnings on 14 October.

“Consumer spending has significantly surpassed pre-pandemic levels, deposit growth is strong, and loan levels have begun to grow” - Brian Moynihan

 

What to expect in Q3?

An average of 22 analysts in Yahoo Finance peg the company reporting earnings per share of $0.71 up 39% from a year ago. Revenue growth is expected to come in at a more timid 4.5%. Much of the profit expansion is seen coming from write-back of provisions made earlier for bad loans due to the coronavirus pandemic-related lockdowns and business slowdown.

Dick Bove, an analyst at Odeon Capital Group, says Bank of America’s focus on capital market underwriting and merger and acquisition (M&A) advisory services should play out well for its earnings.

Bank of America has a 7.99% weighting in the Invesco KBW Bank ETF [KBWB], which has climbed 74.8% over the last 12 months, and a 7.63% weighting in the iShares US Financial Services ETF [IYG], which has climbed more than 50%.

 

Previous earnings performance

In its second quarter, Bank of America reported revenues at $21.5bn, just under the $21.8bn forecast. It was down 4% on the same period last year, dragged by a 6% fall in net interest income due to lower interest rates. Lower trading revenue also hit its figures.

Consumer deposits were up 21% to a record $979bn and credit and debit card spend up 16%. The company also had record client balances of $3.7trn in its wealth and investment management arm. The total investment banking fees of $2.1bn remained near record levels.

  

The Bank of America share price dipped from $38.66 at the close on 14 July to $36.74 on 19 July, in reaction to the reported revenue fall.

Chief executive Moynihan reassured investors, "More than 85% of our buildings and offices are open, and we're welcoming our teammates back. This means more face-to-face meetings; helping to increase sales of consumer products and drive strong household growth in Wealth Management.”

 

Triggers for the BOA stock price

Analysts will have a keen focus on net interest revenue and whether it is set to rise in the months ahead due to higher interest rates and new loan demand from businesses and consumers.

"That's going to be the question. It is the heart of the business for everybody," Gerard Cassidy, analyst at RBC Capital Markets, told Reuters, referring to the whole US banking sector.

“In our view, the biggest catalyst for the banks is loan growth, particularly commercial loan growth, followed by rising interest rates,” said James Shanahan, a banking analyst at Edward Jones, to MarketWatch.

From the latest recommendations, it seems Bank of America will continue to ride the wave of economic recovery.