Earnings season is here, and the financial sector gets to go first. Bank of America Corporation (BAC) reports fourth-quarter results Wednesday morning, and there's plenty riding on this one. Not only is it a bellwether for the banking sector, but it's also one of Warren Buffett's largest holdings. No pressure, right?
What the Numbers Should Look Like
Wall Street is expecting solid growth from Bank of America. Analysts are penciling in fourth-quarter revenue of $27.87 billion, up from $25.50 billion in last year's fourth quarter, according to data from Benzinga Pro. On the earnings front, consensus sits at 96 cents per share, compared to 82 cents per share a year ago.
The bank has a strong track record of delivering. It's beaten revenue estimates in eight of the last ten quarters, including the most recent third quarter. Even more impressive: Bank of America has topped earnings per share expectations for more than 10 straight quarters. That's the kind of consistency that keeps investors happy and analysts employed.
Analyst Sentiment Stays Bullish
Most analysts remain positive heading into the report, though there's been some recent shuffling of price targets and ratings. Here's the rundown:
- TD Cowen: Maintained Buy rating, raised price target from $64 to $66
- Wolfe Research: Downgraded from Outperform to Peer Perform, no price target
- Goldman Sachs: Maintained Buy rating, raised price target from $58 to $64
- Truist Securities: Maintained Buy rating, raised price target from $58 to $62
- Barclays: Maintained Overweight rating, raised price target from $59 to $71
The Wolfe Research downgrade stands out as the lone dissenting voice in an otherwise bullish chorus.
The JPMorgan Benchmark
Bank of America won't be reporting in a vacuum. JPMorgan Chase & Co (JPM) kicked things off Tuesday morning with its own fourth-quarter results, beating expectations on both revenue and earnings per share. JPMorgan CEO Jamie Dimon noted that "each line of business performed well," highlighting strong growth in net interest income, noninterest revenue, and Markets revenue.
Here's the thing though: JPMorgan shares started Tuesday trading higher but turned negative, down 3.5% at the time of writing despite the solid results. That's a reminder that even good earnings don't guarantee a rally. Bank of America will inevitably be measured against JPMorgan's performance, and investors will be watching how the two banking giants stack up.
For context, Bank of America reported impressive numbers in the third quarter, with net interest income up 9% year-over-year and noninterest income up 13% year-over-year. The company even posted record net interest income that quarter. After JPMorgan's double beat, expectations are running high for another strong showing from Bank of America.
Why Buffett Is Watching
Berkshire Hathaway Inc (BRK.B) new CEO Greg Abel and Chairman Warren Buffett will be paying close attention to Wednesday's report. Bank of America is the third-largest holding in the Berkshire Hathaway portfolio at 9.9%, according to CNBC. We're talking about 568,070,012 shares, representing approximately 7.8% of the entire company.
Buffett, who stepped down as CEO, has long been a major backer of financial companies, though he's trimmed some longtime holdings in recent years. The Bank of America position itself has been reduced somewhat, and investors will be watching to see if further changes are coming in the quarters ahead. A strong earnings report could reinforce Berkshire's conviction in the position.
Broader Market Implications
Bank of America's results will ripple beyond just its own stock price. The report could create volatility across other bank stocks and impact major financial sector ETFs like the State Street Financial Sel SPDR ETF (XLF), where Bank of America is the fifth-largest holding at 4.7% of assets.
BAC Price Action: Bank of America stock is down 1.1% to $54.60 on Tuesday versus a 52-week trading range of $33.06 to $57.55. Bank of America shares are up 21.2% over the last 52 weeks.