Bet on Bank Of America

Consumer Banking Drives Results for Bank Of America

Financial sector results were mixed this quarter, but Bank of America (NYSE: BAC) stands. The company’s focus on US retail banking and the interest rate environment has set it up for earnings growth and it’s already showing in the results. The company reported first-quarter earnings and beat consensus by more than 500 basis points on strong net interest income. Net interest income is boosted by continued loan and deposit growth and supported by what appears to be relatively healthy consumption, as well as rising interest rates.


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“Net interest income increased $1.4 billion from the prior year quarter, supported by strong loan and deposit growth,” Chief Financial Officer Alastair Borthwick said. Going forward, and given the expectation of higher interest rates on the forward curve, we expect to take greater advantage of our deposit franchise.

Bank of America puts in a background

The financial sector and Bank of America entered a correction on fears of inflation, slowing growth and a weak consumer, but so far those fears have not materialized. Bank of America’s first quarter results are strong enough for the market to bottom and we believe that will lead to a reversal. Bank of America reported net income of $23.2 billion, a 1.7% gain over last year and beat Marketbeat.com consensus by $0.110 billion, or about 475 points basic. The gain was driven by a 13% increase in average deposits and an 8% increase in average loan and lease balances which contributed to net investment income. The company also saw some growth in most other segments, with Global Banking and Global Markets the only ones to show a decline. In the end, the GAAP of $0.80 broke by $0.05

There haven’t been any analyst comments since Bank of America released its first-quarter results, but they’re on the way. Until then, the Marketbeat.com consensus rating is a buy with a price target more than 30% above the current price. Although the analyst’s price targets softened a bit ahead of the report, the the consensus rating is up in the 12, 3 and 1 month comparisons and we think the trend will be up at least in the next few months. The outlook for interest rate hikes is becoming more aggressive, which will ultimately boost this bank’s earning power.

The technical outlook: Bank Of America hits rock bottom

Price action at Bank of America started to bottom in early March and it looks like it is now completing the move. Price action slid to the $37.50 level, but buyers stepped in to push it back up, confirming support at the $38.00 level. This move looks like a Double Bottom to us and it is confirmed by the stochastic. The Stochastic shows a strong buy signal which will be confirmed if (when) the price action increases. In this scenario, we see this stock rising to the $41.20 level and then to $44.00 where it will have to break above the base line of the pattern to go higher. A move above this level would be very bearish and could come later in the year if the FOMC does not trigger a recession and a hard landing when it starts raising rates.
Bet on Bank Of America