Bank of America shows signs of improvement, but warns investors about continued Brexit uncertainties that might impact the bank
Bank of America Corp (NYSE:BAC) released its second quarter earnings for fiscal year 2016 in July. It barely met the Street expectations, both on the bottom line and top line. It reported earnings per share of 36 cents and revenues of $20.4 million compared to the consensus estimate of 35 cents in EPS and $20.4 million in revenues.
Investors believe that the bank is doing well through its earnings results. They admit that the banking corporation had its share of regulatory issues, however, they have faith that it would be able to overcome these. This is because the bank has a strong decent management which would work effortlessly in directing the stock towards the overall market direction. They believe that the poor earnings returns provide the bank with steady long-term opportunity to provide its investors with dividend growth.
Investors have decided to remain calm and take advantage of what they believe as an undervalued stock. Thus, the long term investors remain positive that the financial services provider would continue to improve on the basis of its cost-cutting plans, enabling it to achieve a healthy book value leading to an increase in stock price in years to come.
Furthermore, during the last season, the bank’s business lines were able to attain growth in net income across the board. Its international market segment grew by 42% year-over-year, and the global banking segment grew by 21% YoY in terms of net income. This improvement in net income would be translated into other metrics that are deteriorating for the bank. Moreover, the domestic segments such as the consumer banking segment also reported an improvement in its earnings marked by 5% increase in consumer loans, 8% increment in its consumer brokerage division, and 8% rise in consumer deposits.
Also, several investment funds increased their stake in this North Carolina-based company. 116 new funds invested in the bank, while 598 increased their stake in the bank. One of such funds is Seaward Management Limited Partnership, which further bought 7,429 shares of the bank.
On the other hand, in recent news, Bank of America warns its investors about possible effects of growing Brexit uncertainties. If they persist, the bank would have to incur extra costs and its business would be adversely impacted. This is because exit of Britain from the European Union could result in limited ability of its UK companies to conduct business in the area.
Not only this, the bank is subject to several variables and complexities in the region in calculation of its businesses’ fair value. Moreover, the UK referendum could create financial instability and exert political stress on the activities of the bank, especially in Portugal, Greece and Italy. However, the bank remains to be positive.
Keeping these things in mind, Bank of America’s performance is understandable. The $146.13 billion company is trading below the market level by 14.84% year-to-date through Monday. However, this performance is line with competitors Citigroup Inc (NYSE:C) and Wells Fargo & Co. (NYSE:WFC) as they also traded below at 16.10% and 12.07% respectively, on YTD basis. The market indexes, on the other hand, were positive. Dow Jones and S&P 500 traded up 5.62% and 11.72% respectively, on YTD basis.
Currently, the stock trades within the daily trading range of $14.26-14.45. The stock is also traded within the 52-week range of $10.99-18.09. The total shares outstanding in the market are 10.22 billion. Out of these shares, 61.44 million trade in the active-market session.
Despite the headwinds from Brexit, the investors are bullish on the stock. According to FactSet Fundamentals, the analysts reiterate 21 Buy, six Overweight, and six Hold ratings on the shares of the bank. The stock closed at $14.33 on the Monday, August 1. The current 12-month median price target is $16.91, reflecting an upside potential of 18% over the last close.