Bank of America Earnings Won’t Keep Shares Past $10

Bank of America branch, New York City.
Oliver Quillia for
Bank of America branch, New York City.

Bank of America’s first-quarter earnings are expected to get a lift from strong fixed-income trading activity when the bank reports April 19, but investors will need to see stronger evidence of a sustained earnings turnaround at the bank to lift the shares meaningfully past the $10 mark.

Consider, for example, Baird Equity analyst David George, who downgraded Bank of America in a note published Tuesday, even while upping his 2012 earnings estimates to $0.65 from $0.50, mainly due to expectations of a strong first quarter.

George and his colleagues explained the discrepancy in the note by stating that they “do not believe the intermediate-term earnings outlook justifies putting new money to work in the stock.”

The latest bearish Bank of America call came from London-based Robert Murphy of HSBC, who initiated coverage on Bank of America Wednesday with an “underweight” recommendation and a $6.20 price target, according to Bloomberg. Murphy’s report could not be obtained.

Analysts as a group are looking for Bank of America to earn 12 cents per share on revenues of $22.77 billion, according to Thomson Reuters data. The most bearish estimate calls for a break-even quarter, while the biggest bull is looking for a 20 cent per share gain. In the first quarter of 2011, Bank of America earned 17 cents per share on revenues of $26.88 billion.

Despite a consensus view that securities dealers will post strong first-quarter numbers, Bank of America has suffered six downgrades year-to-date, as many analysts conclude the more than 75 percent rally year-to-date leaves little room for additional upside.

Evercore analyst Andrew Marquardt sounded a similar note in a March 23 downgrade of Bank of America shares.

“While this quarter may prove better than some expect in terms of capital markets rebound (albeit off easy comps from last quarter), we remain skeptical on the core earnings power longer-term in its ultimately achieving [pretax pre-provision] earnings in the [$45 billion to 50 billion range] (which is already reflected in our ‘norm’ EPS of $1.95/share),” Marquardt wrote.

Nonetheless, Marquardt cited “significant expense levers” in his report, and layoffs are expected to be a big contributor. Bank of America had 282,000 full-time employees at the end of 2011, according to its 10-K filing last month — down just 2,000 from the end of 2009.

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