Bank of America (NYSE:BAC) is set to report FQ1 2014 earnings before the market opens on Wednesday, April 16th. Bank of America will be the fourth major bank to report earnings this season following JPMorgan Chase (NYSE:JPM), Wells Fargo (NYSE:WFC), and Citigroup (NYSE:C). The bar has been set low for the banks this quarter as a sluggish global economy is predicted to hold back bank profits. So far the financials' earnings have been a mixed bag. On Friday JPM missed estimates badly while Wells Fargo posted better earnings than expected. All eyes were on Citigroup on Monday who had recently failed a Federal Reserve stress test and had its plan to increase its dividend and buyback more company shares rejected. Citigroup's numbers pleasantly surprised investors and the company stock rose 4.4% in response. Here's what investors expect from Bank of America on Wednesday.
The current Wall Street consensus expectation is for Bank of America to report 5c EPS and $22.510B revenue, while the current Estimize.com consensus from 28 Buy Side and Independent contributing analysts is 10c EPS and $22.501B in revenue. This quarter the buy-side as represented by the Estimize.com community is expecting Bank of America to beat the Wall Street consensus on EPS by 5c and miss revenue expectations by only $9 million.
Over the past 6 quarters the consensus from Estimize.com has been more accurate than Wall Street in forecasting Bank of America's EPS and revenue 4 times each. 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 more accurate than Wall Street up to 69.5% of the time, but more importantly it does a better job of representing the market's actual expectations. It has been confirmed by Deutsche Bank Quant. Research and an independent academic study from Rice University that stock prices tend to react with a more strongly associated degree to the expectation benchmark from Estimize than from the Wall Street consensus.
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 larger differential in EPS consensuses but almost no difference in revenue expectations.(click to enlarge)
The distribution of estimates published by analysts on the Estimize.com platform range from 2c to 21c EPS and from $21.970B to $22.970B in revenues. This quarter we're seeing a wider distribution of EPS estimates on Bank of America and a moderate range of revenue estimates. Both the delta and range of revenue estimates demonstrate that the Estimize community is confident that BAC will report revenue in-line with the Street's consensus.
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 of estimates signaling less agreement in the market, which could mean greater volatility post earnings. (click to enlarge)
Over the past 4 months the Wall Street EPS consensus fell from 30c to 5c, while the Estimize consensus dropped from 30c to 10c. Meanwhile the Wall Street revenue consensus rose to a high of $22.918B before stalling out to $22.510B while the Estimize forecast declined from $22.984B to $22.501B. Timeliness is correlated with accuracy and downward analyst revision at the end of the quarter are often a bearish indicator.(click to enlarge)
The analyst with the highest estimate confidence rating this quarter is BradHewitt91, who projects 9c EPS and $22.825B in revenue. BradHewitt91 is ranked 13th overall among over 4,000 contributing analysts. Over the past year, BradHewitt91 has been more accurate than Wall Street in forecasting EPS and revenue 52% and 50% of the time respectively over 669 estimates. 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, BradHewitt91 is expecting Bank of America to report strong revenue but fail to meet the Estimize community's expectations on profit
This quarter contributing analysts on the Estimize.com platform expect Bank of America's EPS and revenue to fall by 50% and 5.1% respectively compared to FQ1 last year. So the far the financials' earnings season has been hard to predict but this quarter the Estimize community expects BAC to beat the Street on profit, but come up marginally short on revenue.