Zacks Investment Research



|Bank of America Corporation |(BAC – NYSE) |$30.26* |

Note: This report contains substantially new material. Subsequent reports will have changes highlighted.

Reason for Report: 1Q18 Earnings Update

Prev. Ed.: Mid-Quarter Update, Mar 12, 2018 (brokers’ material considered till Mar 9, 2018)

Brokers’ Recommendations: Positive: 55.6% (10 firms); Neutral: 44.4% (8); Negative: 0.0% (0) Prev. Ed.: 10; 8; 0

Brokers’ Target Price: $33.20 (↑$0.76 from the last edition; 16 firms) Brokers’ Avg. Expected Return: 9.7%

*Note: Though dated Apr 25, 2018, share price and brokers’ material are as of Apr 20, 2018.

A flash update on 1Q18 Earnings was done on Apr 16, 2018.

Note: The tables below (Revenues, Margins, Earnings per Share and Balance Sheet) contain material from fewer brokers than in the Valuation table. The additional figures in the Valuation table come from reports that did not have accompanying spreadsheet models.

Portfolio Manager Executive Summary

Bank of America Corporation is a bank holding company based in Charlotte, NC, serving individual consumers, small and middle market businesses and large corporations.

Trend of Broker Opinions: Broker sentiment on the stock is skewed toward optimistic side, with 55.6% of the firms in the Digest group being positive and the remaining 44.4% rating it neutral. None of the firms rendered a negative rating. Target prices provided by the firms range from a low of $27.00 to a high of $37.00 per share. The average came in at $33.20 per share, implying return of 9.7%.

Chief Investment Considerations:

▪ Well positioned for organic growth

▪ Improving credit quality

▪ Stable capital position

▪ Enhanced capital deployment activities

▪ Loan & deposit growth

▪ Rise in interest rates

▪ Lower tax rates

▪ Dismal mortgage banking performance

▪ Uncertainty of capital markets performance

▪ Litigation hassles

Positive or equivalent outlook – 10 firms or 55.6%: According to these firms, Bank of America has been progressing well toward its goals of restructuring business, improving credit quality, managing long-term debt and bolstering capital ratios. These firms believe the company has created a strong consumer banking franchise through both organic growth and acquisitions. Further, these firms believe that the company is well positioned to benefit from rising interest rates and lower tax rates. Also, limited overseas exposure and recovery in the housing sector will definitely support the company’s financials. These firms further believe that the company is well poised to grow earnings, given its strong organic strategy and expense control initiatives.

Neutral or equivalent outlook – eight firms or 44.4%: Though Bank of America has been able to lower operating expenses and there has been consistent improvement in asset quality, these firms expect continuous legal (although lesser now) and economic headwinds (sluggish global growth) to limit its bottom-line growth to some extent. Also, dismal performance of mortgage banking and slump in investment banking will likely hurt the company’s fee income in the quarters ahead.

April 25, 2018

Overview

Headquartered in Charlotte, NC, Bank of America Corporation is a financial holding company. Its banking and non-banking subsidiaries across the U.S. and in other international markets provide a diverse range of banking and non-banking financial services and products.

Bank of America present results of operations through the following business segments:

▪ Consumer Banking segment (53.3% of net interest income in 2017), comprising Deposits and Consumer Lending businesses, provides a wide range of credit, banking and investment products and services to consumers and businesses.

▪ Global Wealth & Investment Management segment (13.5%) consists of Merrill Lynch Global Wealth Management (MLGWM) and U.S. Trust, Bank of America Private Wealth Management (U.S. Trust). The segment offers personalized solutions to meet clients’ wealth structuring, investment management, trust and banking needs, including specialty asset management services.

▪ Global Banking segment (23.0%), which includes Global Corporate Banking, Global Commercial Banking, Business Banking and Global Investment Banking divisions, provides lending-related products and services, integrated working capital management and treasury solutions, and underwriting and advisory services.

▪ Global Markets segment (8.2%) offers sales and trading, market-making, financing, securities clearing, settlement and custody, and risk-management services globally.

▪ All Other segment (2.0%) consists of ALM activities, equity investments, international consumer card business, liquidating businesses, residual expense allocations and other.

More information is available at the company’s website: .

Key investment considerations identified by the firms are as follows:

|Key Positives |Key Negatives |

|Improvement in credit quality to boost earnings through better reserve |Dismal mortgage banking performance amid higher interest rates will hurt |

|releases |fee income |

|Successful execution of expense reduction plans having positive impact on |Continued macroeconomic challenges are anticipated to impede revenues and |

|financials |earnings growth |

|Strong balance sheet and sufficient liquidity will enable the company to | |

|efficiently deploy capital | |

|Growth in loan and deposit markets will help the company strengthen its | |

|operations | |

|A higher interest rate environment will be favorable as the company holds | |

|one of the industry's best deposit franchises | |

Note: Bank of America operates on a calendar-year basis.

April 25, 2018

Long-Term Growth

Bank of America has built a huge consumer banking franchise, which boasts considerable market shares, through both internal growth and acquisitions. The company has been utilizing its diversified business mix to introduce new products and garner more market share in the country’s attractive high-growth regions. The franchise will enable the company to give impetus to revenues even in a challenging economic environment.

Also, there are abundant organic growth prospects for Bank of America. As a significant capital market player, the company is expected to benefit from secular growth of the global capital markets. Its strong consumer and commercial banking franchise, significant credit card operations, and growing asset management business, are all well positioned to benefit from the cyclical recovery in the U.S. economy. Additionally, the company continues to focus on streamlining the balance sheet by selling non-core assets, addressing legacy issues, reducing debt and implementing its customer-focused strategy.

Over the long term, management prefers organic growth over acquisitions. Organic growth initiatives include cross-selling of banking products within the consumer bank and making investments to build the company’s global capital market capabilities in Europe and Asia.

Additionally, Bank of America continues to align its banking center network according to the customer needs, for which it is both divesting and consolidating branches. By 2022, the bank intends to open 500 new centers and redesign more than 1,500 centers with technology upgrades. This will enable the company to expand its financial footprint. Specifically, the company’s primary aim is to have full franchise, where till now, it provided commercial wealth management services.

April 25, 2018

Target Price/Valuation

Provided below is a summary of valuations and ratings as compiled by Zacks Research Digest:

|Rating Distribution |

|Positive |55.6% |

|Neutral |44.4% |

|Negative |0.0% |

|Average Target Price |$33.20↑ |

|Maximum Upside from Current Price |22.3% |

|Minimum Upside from Current Price |-10.8% |

|Upside from Current Price |9.7% |

|Digest High |$37.00 |

|Digest Low |$27.00 |

|No. of Analysts giving target price/Total |15↓/18 |

Risks to the price target include general economic conditions, higher credit costs, higher mortgage repurchase expenses, weaker capital markets, interest rate environment, higher-than-expected litigation expenses and faster-than-expected loan runoff.

Recent Events

On Apr 16, 2018, Bank of America announced 1Q18 results. Despite dismal investment banking performance, higher interest rates, trading rebound and tax cuts drove the company’s earnings of 62 cents per share, which outpaced the Zacks Consensus Estimate of 59 cents. Also, the figure was 38% higher than the prior-year quarter.

Net interest income growth (driven by higher interest rates), higher card income, impressive equity trading income (up 38%) supported revenues. Operating expenses recorded a decline. Additionally, provision for credit losses remained stable.

As expected, investment banking fees declined. Further, fixed income trading revenues fell 13% while mortgage banking fees were lower on decrease in loan production.

Overall performance of the company’s business segments, in terms of net income generation, was decent. All segments witnessed improvement in net income.

Revenues

Prior to the 1Q18 earnings release, the Digest average net interest income (NII) growth forecast was 4.8% for both 2018 and 2019. The growth rate forecasts for total non-interest income were 3.8% for 2018 and 2.9% for 2019. Following the 1Q18 earnings release, the Digest average NII growth forecast increased to 6.0% for 2018 and 4.9% for 2019. The Digest average NII growth forecast was 7.1% for 2020. The growth rate forecast for total non-interest income increased to 4.1% for 2018 and 3.5% for 2019. The growth rate forecast for total non-interest income was 9.7% for 2020.

Total revenue as compiled by Zacks Research Digest is shown in the table below:

|($ in million) |1Q17A |

|QCA |Kalyan Nandy |

|Lead Analyst |Swayta D. Shah |

|Copy Editor |Proma Bhattacharjee |

|Content Ed. |N/A |

|No. of brokers reported/Total brokers |18/18 |

|Reason for Update |Earnings |

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April 25, 2018

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