Bank of America Corp. (BAC) is trading higher by 2.5% in Thursday’s pre-market after beating Q3 2021 top and bottom line estimates. The banking giant posted a profit of $0.85 per-share during the quarter, $0.15 higher than expectations, while revenue rose a healthy 11.9% year-over-year to $22.77 billion, more than $1 billion better than consensus. BAC returned $1.7 billion in credit loss reserves to the company coffer, driven by “asset quality improvements”.
Solid Quarter Despite Headwinds
The company benefited from strong deposit growth and the Federal Paycheck Protection Program, even though eligibility ended prior to the start of the reporting quarter. May 31st was the final application date so the income was driven by loan approvals made in prior quarters. The stock fell more than 5% in the three sessions leading into the release, with investors stepping aside due to worries about minimum wage increases and interest rates.
The results improved sentiment after Wolfe Research analyst Steven Chubak downgraded the stock to ‘Hold’ last week, noting “Two primary drivers of our downgrade: 1) Valuation; and 2) Fee Income. For valuation, even when layering in higher rates (+100bps), shares screen rich relative to other rate sensitive peers, notably MS, RJF, LPLA, NTRS. 2) Cons. fee income forecasts also appear too aggressive with the street crediting tax gains from ESG / other investments without reflecting associated fee income drag.”
Wall Street and Technical Outlook
Wall Street consensus is locked into an ‘Overweight’ rating, now based upon 14 ‘Buy’, 2 ‘Overweight’, 9 ‘Hold’, 1 ‘Underweight’, and 1 ‘Sell’ recommendation. Price targets currently range from a low of $34 to a Street-high $52 while the stock is set to open Thursday’s session within a few pennies of the median $45 target. This mid-range placement suggests that Bank of America is fairly valued at this time, lowering odds for big upside or downside.
Bank of America has been trading within the price range of the 2008 economic collapse for the last 12 years. The rally that started after the pandemic decline ended less than one point below the .786 Fibonacci selloff retracement level in June 2021, giving way to a sideways pattern, ahead of a September breakout that still hasn’t cleared that harmonic barrier. A buying spike above 45 would mark a highly bullish event in this scenario, opening the door to a test of 2007’s all-time high at 55.08.
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Disclosure: the author held no positions in aforementioned securities at the time of publication.
This article was originally posted on FX Empire