Bank Of America Edging Toward $10 Ahead Of 3Q 2012 Earnings

Oct.15.12 | About: Bank of (BAC)

By: Brendan Gilmartin
Bank of America (BAC) is scheduled to report 3Q 2012 earnings before the bell on Wednesday, October 17. The results are typically released at 7:00 a.m. EST with a conference call scheduled to follow at 8:30 a.m. Bank of America is a Dow component with broad market influence and therefore could have a heavy impact on the index futures and other key market gauges. Note that Bank of America is the last of the major banking institutions to report earnings for the recent quarter.

  • Bank of America recently disclosed charges related to a settlement in a shareholder lawsuit involving the purchase of Merrill Lynch and other charges.
  • Bank of America is expected to post a loss of -$0.07 in the 3Q 2012 period (range is -$0.18 to $0.02). Revenues are seen falling 23.1% to $21.89 bln (Source: Yahoo! Finance).
  • At a recent $9.12, Bank of America shares are still trading at a steep discount to Tangible Book Value of $13.22 (as of 06/30/2012).

Bank of America's results follow strong earnings from JP Morgan Chase (JPM) and a mixed quarter from Wells Fargo (WFC).

  • JP Morgan Chase reported 3Q EPS were a record $1.40 per share, handily topping the consensus of $1.22, thanks in part to a 29% surge in mortgage banking and an expansion in business banking loan growth.
  • Wells Fargo reported 3Q earnings of just $0.88 per share, narrowly topping the consensus of $0.87, sending its shares down 2.64%, while revenues and net interest margins missed the mark.


Recent News

  • 10/02: JP Morgan derivatives strategists are recommending that investors buy January $10 Calls in Bank of America options, citing improvements in the housing market, a stronger capital position, and cost savings, according to a post in Barron's.
  • 09/28: Goldman Sachs reiterated a Neutral rating and a $7 price target on Bank of America, according to Benzinga.com, following the settlement in a lawsuit with Merrill Lynch investors.
  • 09/28: Bank of America settles a class action lawsuit brought in 2009 on behalf of investors who purchased or held Bank of America securities when it acquires Merrill Lynch. Under terms of the proposed settlement, Bank of America would pay a total of $2.43 billion. Litigation expense, improvements in the company's credit spreads and the U.K. tax charge are expected to negatively impact reported third-quarter EPS by approximately $0.28.

Technical Review

Bank of America shares are up more than 30% since late July, tracking gains in other financial issues. If earnings come through better than expected, there is upside to the recent high near $9.75, followed by the 52-week apex of $10.10 (3/19/2012). A surge above $10 would therefore be technically significant. Conversely, support is at $8.50 (50-Day SMA), with downside risk to $7.75. (Chart courtesy of StockCharts.com)

Summary

Bank of America shares have been moving higher in recent months, benefiting from an improvement in the U.S. housing market, high capital ratios, stronger net interest margins, and valuation at 0.7x tangible book value. But with the Street forecasting a slight loss and Wells Fargo coming off a lackluster release, Bank of America is vulnerable to any steep misstep. Furthermore, the firm disclosed total charges of $0.28 per share, potentially clouding the post-market reaction as the Street seeks to clarify the results.

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