Higher interest rates and loan growth are expected to continue supporting Bank of America’s BAC net interest income (NII). Further, its efforts to expand into new markets and digital offerings will likely enhance cross-selling opportunities.
However, dismal performance of capital markets amid tough operation backdrop along with litigation issues remain concerns for the company.
In fact, the Zacks Consensus Estimate for BofA’s current-year earnings has remained unchanged over the past 30 days, reflecting that analysts have a neutral stance on the stock. Thus, the stock currently carries a Zacks Rank #3 (Hold).
Bank of America Corporation Price and Consensus
Bank of America Corporation price-consensus-chart | Bank of America Corporation Quote
Looking at its fundamentals, over the last three years (2016-2018), the company’s NII witnessed a CAGR of 7.4%. Moreover, its net interest yield increased to 2.42% in 2018 from 2.37% in 2017, 2.25% in 2016 and 2.19% in 2015. Higher interest rates and steady rise in loan demand will likely continue favorably impacting margins and NII in the quarters ahead.
Further, the company’s expenses declined at a three-year CAGR of 1.6% (till 2018 end). The trend persisted in first-quarter 2019 too. Management expects expenses to remain relatively stable in 2019 and 2020 compared with the 2018 level.
Additionally, BofA continues to align its banking center network according to customer needs. By 2021, it intends to open 500 centers and redesign 2,500 with technology upgrades. Further, the company announced plans to add 2,200 more ATMs to its network. These initiatives along with the launch of Zelle and Erica will enable it to focus more on improving its digital offerings.
However, the company’s significant dependence on capital markets’ revenues is a woe. Concerns relating to global economic slowdown and several other geopolitical matters have been weighing on the corporates’ plans to raise fresh capital by issuing shares and/or debt as well as M&As and IPOs. Because of these, the performance of its investment banking business is expected to remain weak in the quarters ahead.
Further, BofA still faces investigations from several federal agencies for its business conducts in the pre-crisis period. Legal expenses are expected to continue weighing marginally on the company’s bottom line in the near future.
Stocks to Consider
Some better-ranked stocks from the finance space are Cohen & Steers, Inc. CNS, BlackRock, Inc. BLK and Franklin Resources, Inc. BEN.
Over the past 60 days, Cohen & Steers witnessed an upward earnings estimate revision of 6.9% for 2019. The stock currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Over the past 60 days, the Zacks Consensus Estimate for BlackRock’s current-year earnings has been revised 4.4% upward. The stock currently carries a Zacks Rank #2 (Buy).
Franklin Resources also sports a Zacks Rank of 1 at present. It has witnessed an upward earnings estimate revision of 7.9% for fiscal 2019, over the past 60 days.
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