Earnings season is now underway and Bank of America (BAC) is set to release FQ4'2013 earnings before the market opens on Wednesday, January 15th. Tuesday morning we saw JPMorgan Chase (JPM) and Wells Fargo (WFC) report tepid results with mixed reaction from investors. Litigation from the subprime mortgage crisis still hangs over the head of the banking industry and is one of the biggest concerns for BAC. Since the financial crisis Bank of America has done well to curb costs and keep litigation risk to a minimum. Over the past quarter BAC stock is up nearly 15% and analyst expectations are high for 2014.
The current Wall Street consensus expectation is for BAC to report 27c EPS and $21.274B revenue while the current Estimize consensus from 36 Buy Side and Independent contributing analysts is 28c EPS and $21.783B revenue.
Bank of America has beaten the Wall Street profit consensus 5 times over the past 6 quarters. In each of these 5 quarters the Estimize consensus from Buy-side and Independent contributing analysts has been more optimistic than Wall Street and therefore more accurate. By tapping into a wider range of contributors including hedge-fund analysts, asset managers, independent research shops, students, and non professional investors Estimize has created a data set that is up to 69.5% more accurate than Wall Street, but more importantly, it does a better job of representing the market's actual expectations.
The magnitude of the difference between the Wall Street and Estimize consensus numbers often identifies opportunities to take advantage of expectations that may not have been priced into the market. In this case we are seeing a small difference between the consensuses.
The distribution of estimates published by analysts on Estimize range from 25c to 31c EPS and $21.000B to $23.050B in revenues. This quarter we're seeing a smaller distribution of estimates on profit, but a larger one for revenue. The size of the distribution of estimates relative to previous quarters often signals whether or not the market is confident that it has priced in the expected earnings already. A wider distribution signaling the potential for greater volatility post earnings, a smaller vice versa.
Over the past 4 months we have seen downward analyst revisions.This quarter the Estimize EPS consensus has returned to its original 28c while the Wall Street expectation has decreased from 29c to 27c. Wall Street has decreased its revenue expectation from $22.504B to $21.274B while Estimize has reduced its consensus from $22.525B to $21.783B.
The analyst with the highest estimate confidence rating this quarter is BradHewitt91 who projects 29c EPS and $21.350B in revenue. In the Winter 2014 season, BradHewitt91 is currently ranked as the #1 overall analyst. Estimate confidence ratings are calculated through algorithms developed by deep quantitative research which looks at correlations between analyst track records and tendencies as they relate to future accuracy. In this case the highest rated analyst is expecting BAC to beat the Street on both the top and bottom line.
Throughout the past 2 years BAC has met or exceeded the Wall Street profit consensus 6 times. This quarter contributing analysts on the Estimize platform are expecting Bank of America to beat the Street again by a small margin.