BAC Stock Earnings: Bank of America misses on top and bottom lines

UPDATE: Bank of America shocked the market early Monday by reporting GAAP EPS of $0.73 on revenue of $22.7 billion. Wall Street consensus had been for $0.75 a share on revenue of $22.79 billion. Net interest income rose to $12.4 billion, up 22% YoY, due to higher interest rates and loan growth. The culprit for the earnings miss seems to be a higher buffer. Provision for credit losses of $523 million increased $2.1 billion. Average deposits rose 7% YoY to $2 trillion. BAC shares are down 1.7% at $31.70.

Bank of America (BAC) stock is buoyant in Monday's premarket as investors bet on a second-quarter earnings beat, which is expected to be released before the market opens. BAC shares are advancing 1.3% to $32.68 at the time of writing. 

Also read: Microsoft Stock Deep Dive: Price target at $230 with near-term risks due to strong US dollar

Wall Street expects GAAP earnings per share (EPS) of $0.75 on revenue of $22.79 billion for the quarter.

Bank of America Earnings Preview: Bank stress test may affect guidance

JPMorgan and Bank of America – the US's two largest banks – were both issued in later June poor results for the Federal Reserve's banking stress test. Because of this, Bank of America will raise its capital buffer by one percentage point to 3.5%. This may affect earnings but will more likely affect results in the second half of the year. Investors will be listening to the earnings call to understand how much this change will affect guidance for the rest of the year. Bank of America has already said it will raise its quarterly dividend by one penny, but the market will listen to see how raising the capital buffer affects the stock buyback program. JPMorgan's results were tepid last week in line with JPM CEO Jamie Dimon's dire warning that a hurricane was on its way for the US economy.

Brian Moynihan, Bank of America's longtime CEO, said at that same press conference that BAC management could not have been more opposite in his outlook. “We’re in North Carolina,” Moynihan said. “You’ve got hurricanes that come every year.” Moynihan pointed to the strength of the employment rate and growing consumer spending to explain why did not see an imminent recession on the horizon. 

Baird Equity Research put out a bank industry earning note ahead of this week's deluge of bank earnings reports that gave BAC a Neutral rating attached to a still bullish price target of $42. 

"Weakness in investment banking is offset by loan growth, higher NIM, and increased trading fees," read the note from Baird. "During a mid-June investor conference, management noted that consumer spending was up ~9% Y/Y on an MTD-basis as real spending improved across all categories (ex-gasoline), contributing to solid credit card growth through Q222. Management now expects high single-digit loan growth for FY2022 (vs. mid-single digit loan growth previously) driven by recovering commercial utilization rates and lower consumer payment rates."

Bank of America stock already rose 7% on Friday after Wells Fargo (WFC) reported net interest income advancing 11%. Like Wells Fargo, Bank of America is a major corporate lender, and the market was already anticipating that solid results await BAC. The bank's most recent credit card data from June showed strong consumer spending that should buffer Q2 results. Management said June credit card spending was up 16% YoY, and that the delinquency rate remained flat with May at 0.84%, down from 0.97% one year ago.

Bank of America Stock Forecast: Narrow range allows promise of breakout

Bank of America stock has been trading within a descending wedge structure since at least February. At the precipice of Q2 earnings, BAC now has the top line and bottom line in quite close quarters. This leaves just a $3 window between the top line at $32.25 and the bottom line just above $29. A breakout due to results is more likely than ever. If BAC stock breaks above the top line, a solid bet is that bulls will push shares up to the most recent swing high at $37.50. 

One positive sign on the chart is that the Accumulation/Distribution line has been heading higher since mid-June. The indicator needs to eclipse -9.6 billion though to really show promise.

BAC daily chart

BAC's weekly chart below shows how far shares have fallen since producing a double-top formation at $50 back in January and February. Before BAC makes it anywhere close to $50 (due to recession fears it is unlikely BAC makes it back to $50 before 2023), further resistance sits at $44.25. The 15-week (similar to the 100-day moving average) and 30-week (similar to the 200-day moving average) MAs show that there should be resistance near $35 and $40 as well.

BAC weekly chart