Bank of America Q1 Earnings Preview: Outperform Looks Likely

Summary:

Bank of America is releasing Q1 2023 earnings this upcoming Tuesday, 4/18/23.
There are strong signals indicating that it should outperform consensus, namely the fact that the other 3 megabanks outperformed significantly against consensus for Q1 2023.
Furthermore, I believe the deposit activity we saw across the megabanks constitutes an ongoing ‘flight to safety’ of banking deposits – a force which should also benefit BoFA.
Additionally, BoFA has already seen pre-earnings price action in line with the other mega banks last week – increasing my conviction around an outperform on earnings.

<figure class=”getty-figure” data-type=”getty-image”><picture> <img src=”https://static.seekingalpha.com/cdn/s3/uploads/getty_images/1152386505/image_1152386505.jpg?io=getty-c-w750″ alt=”Office building of BoA in Singapore” data-id=”1152386505″ data-type=”getty-image” width=”1536px” height=”1024px” srcset=”https://static.seekingalpha.com/cdn/s3/uploads/getty_images/1152386505/image_1152386505.jpg?io=getty-c-w1536 1536w, https://static.seekingalpha.com/cdn/s3/uploads/getty_images/1152386505/image_1152386505.jpg?io=getty-c-w1280 1280w, https://static.seekingalpha.com/cdn/s3/uploads/getty_images/1152386505/image_1152386505.jpg?io=getty-c-w1080 1080w, https://static.seekingalpha.com/cdn/s3/uploads/getty_images/1152386505/image_1152386505.jpg?io=getty-c-w750 750w, https://static.seekingalpha.com/cdn/s3/uploads/getty_images/1152386505/image_1152386505.jpg?io=getty-c-w640 640w, https://static.seekingalpha.com/cdn/s3/uploads/getty_images/1152386505/image_1152386505.jpg?io=getty-c-w480 480w, https://static.seekingalpha.com/cdn/s3/uploads/getty_images/1152386505/image_1152386505.jpg?io=getty-c-w320 320w, https://static.seekingalpha.com/cdn/s3/uploads/getty_images/1152386505/image_1152386505.jpg?io=getty-c-w240 240w” sizes=”(max-width: 768px) calc(100vw – 36px), (max-width: 1024px) calc(100vw – 132px), (max-width: 1200px) calc(66.6vw – 72px), 600px” loading=”lazy”> </picture><figcaption> justhavealook/iStock Unreleased via Getty Images</figcaption></figure> <h2>Overview</h2> Bank of America (NYSE:<a href=”https://seekingalpha.com/symbol/BAC” title=”Bank of America Corporation”>BAC</a>) is set to release earnings this upcoming Tuesday, April 18th. This can be considered as a particularly important earnings report as Bank of America stock has faced significant depreciation YTD in the wake of the SVB collapse (along with the rest of the banking sector). BAC shares were within a few points of the S&P this year but have since fallen off significantly and are now trailing the S&P by 20.92%. <figure class=”regular-img-figure a-c” contenteditable=”false”><a href=”https://static.seekingalpha.com/uploads/2023/4/15/47904909-16816003038573225_origin.png” rel=”lightbox” data-width=”1009″ data-height=”525″ data-og-image-twitter_small_card=”true” data-og-image-twitter_large_card=”true” data-og-image-twitter_image_post=”true” data-og-image-msn=”true” data-og-image-facebook=”true” data-og-image-google_news=”true” data-og-image-google_plus=”true” data-og-image-linkdin=”true”><img src=”https://static.seekingalpha.com/uploads/2023/4/15/47904909-16816003038573225.png” alt=”Seeking Alpha” contenteditable=”true” loading=”lazy”></a><figcaption>Seeking Alpha</figcaption></figure> My view is that Bank of America’s earnings will at least achieve consensus and are actually likely to outperform. Within this article I’ll outline why I believe this to be the case. <h2 class=”paywall-full-content invisible”>Earnings Indicators</h2> <h4 class=”paywall-full-content invisible”>Money Center Bank Earnings</h4> The first thing to consider is that the other 3 US megabanks (‘money center banks’) all released earnings last week – and all 3 of them outperformed consensus estimates. While JPMorgan has gotten the most attention in the press, it was actually Citigroup that posted the highest EPS surprise against consensus. JPMorgan did post the highest percentage beat on revenue but Citigroup was not too far off in this regard. Wells Fargo didn’t quite put up a showing like the other two yet still managed to beat consensus forecasts. <table> <tr> <td>Q1 2023</td> <td> </td> <td> </td> <td> </td> </tr> <tr> <td>Bank</td> <td>JPM</td> <td>C</td> <td>WFC</td> </tr> <tr> <td>GAAP EPS</td> <td>$4.10</td> <td>$2.19</td> <td>$1.23</td> </tr> <tr> <td>GAAP EPS Surprise %</td> <td>21.54%</td> <td>29.79%</td> <td>7.86%</td> </tr> <tr> <td>Revenue</td> <td>$38.35B</td> <td>$21.45B</td> <td>$20.73B</td> </tr> <tr> <td>Revenue Surprise %</td> <td>7.22%</td> <td>6.91%</td> <td>3.34%</td> </tr> </table> <button class=”table-enlarge-button”><svg viewbox=”0 0 16 16″ xmlns=”http://www.w3.org/2000/svg” class=”table-enlarge-icon”><path fill-rule=”evenodd” clip-rule=”evenodd” d=”M16 11a5 5 0 0 1-5 5H5a5 5 0 0 1-5-5V5a5 5 0 0 1 5-5h6a5 5 0 0 1 5 5v6zm-4.5-2.5h2v-6h-6v2h4v4zm-9-1h2v4h4v2h-6v-6z”></path></svg>Click to enlarge</button> Source: Author’s Excel Spreadsheet, Data from Seeking Alpha With the latest earnings reports from these 3 megabanks we also have information on two critical variable: deposits and inflows. I consider these critical at the moment because of the recent SVB bank failure; this was catalyzed by deposit outflows, otherwise known as a bank run. When there has just been a bank run, it’s quite sensible for investors to be particularly concerned about deposit balances and deposit flows at any banks. Upon looking into the earnings transcripts for these 3, I believe there is cause for optimism. <ol class=”paywall-full-content invisible no-summary-bullets”><li> JPM<ul> <li>Average deposits down 2% quarter-over-quarter</li> <li>End-of-period deposits up 2% quarter-over-quarter</li> <li>Intra-quarter deposit flow trend reversal; ended up with higher deposits</li> </ul> </li></ol> <figure class=”regular-img-figure a-c” contenteditable=”false”><a href=”https://static.seekingalpha.com/uploads/2023/4/15/47904909-16816003037920377_origin.png” rel=”lightbox” data-width=”757″ data-height=”287″ data-og-image-twitter_small_card=”true” data-og-image-twitter_large_card=”true” data-og-image-twitter_image_post=”true” data-og-image-msn=”true” data-og-image-facebook=”false” data-og-image-google_news=”true” data-og-image-google_plus=”true” data-og-image-linkdin=”true”><img src=”https://static.seekingalpha.com/uploads/2023/4/15/47904909-16816003037920377.png” alt=”Seeking Alpha” contenteditable=”true” loading=”lazy”></a><figcaption>Seeking Alpha</figcaption></figure> <ul class=”paywall-full-content invisible no-summary-bullets”><li>Interest Bearing Deposits up 31.18% YoY for Q1 2023</li></ul> <figure class=”regular-img-figure a-c” contenteditable=”false”><a href=”https://static.seekingalpha.com/uploads/2023/4/15/47904909-16816003041370738_origin.png” rel=”lightbox” data-width=”1497″ data-height=”84″ data-og-image-twitter_small_card=”false” data-og-image-twitter_large_card=”false” data-og-image-twitter_image_post=”false” data-og-image-msn=”false” data-og-image-facebook=”false” data-og-image-google_news=”false” data-og-image-google_plus=”false” data-og-image-linkdin=”false”><img src=”https://static.seekingalpha.com/uploads/2023/4/15/47904909-16816003041370738.png” alt=”Seeking Alpha” contenteditable=”true” loading=”lazy”></a><figcaption>Seeking Alpha</figcaption></figure> 2. Citigroup <ul class=”paywall-full-content invisible no-summary-bullets”><li>Roughly $30B of deposit inflows intra quarter</li></ul> <figure class=”regular-img-figure a-c” contenteditable=”false”><a href=”https://static.seekingalpha.com/uploads/2023/4/15/47904909-168160030412183_origin.png” rel=”lightbox” data-width=”783″ data-height=”490″ data-og-image-twitter_small_card=”true” data-og-image-twitter_large_card=”true” data-og-image-twitter_image_post=”true” data-og-image-msn=”true” data-og-image-facebook=”true” data-og-image-google_news=”true” data-og-image-google_plus=”true” data-og-image-linkdin=”true”><img src=”https://static.seekingalpha.com/uploads/2023/4/15/47904909-168160030412183.png” alt=”Seeking Alpha” contenteditable=”true” loading=”lazy”></a><figcaption>Seeking Alpha</figcaption></figure> <ul class=”paywall-full-content invisible no-summary-bullets”><li>3.2% increase in interest bearing deposits YoY for Q1 2023</li></ul> <figure class=”regular-img-figure a-c” contenteditable=”false”><a href=”https://static.seekingalpha.com/uploads/2023/4/15/47904909-16816003039935975_origin.png” rel=”lightbox” data-width=”1492″ data-height=”93″ data-og-image-twitter_small_card=”false” data-og-image-twitter_large_card=”false” data-og-image-twitter_image_post=”false” data-og-image-msn=”false” data-og-image-facebook=”false” data-og-image-google_news=”false” data-og-image-google_plus=”false” data-og-image-linkdin=”false”><img src=”https://static.seekingalpha.com/uploads/2023/4/15/47904909-16816003039935975.png” alt=”Seeking Alpha” contenteditable=”true” loading=”lazy”></a><figcaption>Seeking Alpha</figcaption></figure> 3. Wells Fargo <ul class=”paywall-full-content invisible no-summary-bullets”> <li>Average deposits down 7% YoY for Q1 2023</li> <li>‘Brief increase in inflows that has since abated’, end of quarter deposits above firm estimates</li> </ul> <figure class=”regular-img-figure a-c” contenteditable=”false”><a href=”https://static.seekingalpha.com/uploads/2023/4/15/47904909-16816003040678394_origin.png” rel=”lightbox” data-width=”757″ data-height=”432″ data-og-image-twitter_small_card=”true” data-og-image-twitter_large_card=”true” data-og-image-twitter_image_post=”true” data-og-image-msn=”true” data-og-image-facebook=”true” data-og-image-google_news=”true” data-og-image-google_plus=”true” data-og-image-linkdin=”true”><img src=”https://static.seekingalpha.com/uploads/2023/4/15/47904909-16816003040678394.png” alt=”Seeking Alpha” contenteditable=”true” loading=”lazy”></a><figcaption>Seeking Alpha</figcaption></figure> <ol class=”paywall-full-content invisible no-summary-bullets”><li><ul><li>2.49% decrease in interest bearing deposits YoY for Q1 2023</li></ul></li></ol> <figure class=”regular-img-figure a-c” contenteditable=”false”><a href=”https://static.seekingalpha.com/uploads/2023/4/15/47904909-16816003038434017_origin.png” rel=”lightbox” data-width=”1502″ data-height=”79″ data-og-image-twitter_small_card=”false” data-og-image-twitter_large_card=”false” data-og-image-twitter_image_post=”false” data-og-image-msn=”false” data-og-image-facebook=”false” data-og-image-google_news=”false” data-og-image-google_plus=”false” data-og-image-linkdin=”false”><img src=”https://static.seekingalpha.com/uploads/2023/4/15/47904909-16816003038434017.png” alt=”Seeking Alpha” contenteditable=”true” loading=”lazy”></a><figcaption>Seeking Alpha</figcaption></figure> While there are material differences in performance across these 3, the theme here as I see it is that there was a material inflow of deposits due to the banking sector turmoil that we have been seeing. While this still netted out negative for Wells, they still managed to beat their internal estimates for deposit balances while also outperforming Wall Street consensus as to earnings and revenues. This is all due to what I believe to be an ongoing rebalancing in the banking sector, which I will briefly outline in the next section. 4. Bank of America <ul class=”paywall-full-content invisible no-summary-bullets”><li>While Q1 2023 results are not yet available, we should note that BoFA has had a similar trajectory to WFC in terms of deposits – although one that is less numerically significant.</li></ul> <figure class=”regular-img-figure a-c” contenteditable=”false”><a href=”https://static.seekingalpha.com/uploads/2023/4/16/47904909-16816628410754013_origin.png” rel=”lightbox” data-width=”1495″ data-height=”88″ data-og-image-twitter_small_card=”false” data-og-image-twitter_large_card=”false” data-og-image-twitter_image_post=”false” data-og-image-msn=”false” data-og-image-facebook=”false” data-og-image-google_news=”false” data-og-image-google_plus=”false” data-og-image-linkdin=”false”><img src=”https://static.seekingalpha.com/uploads/2023/4/16/47904909-16816628410754013.png” alt=”Seeking Alpha” contenteditable=”true” loading=”lazy”></a><figcaption>Seeking Alpha</figcaption></figure> <h4 class=”paywall-full-content invisible no-summary-bullets”>Sector-Wide Deposit Rebalancing</h4> My perspective is that the deposit inflows we are seeing across the megabanks indicate an ongoing shift in deposits from smaller banks to larger ones. These are zero-sum flows in the sense that they are deposits flowing from smaller (regional) banks to megabanks. If a businessperson or a HNWI has the risk of their bank of their bank failing on their mind, it is sensible that they would choose to reallocate at least a portion of their balances into what they perceive as a more secure institution. In the case of banks, that means big. I covered this in somewhat more detail <a href=”https://seekingalpha.com/article/4594250-kbwb-etf-big-bank-trade-on”>in a recent article</a> and believe it to be the basis of a tactical trading opportunity within the banking sector at large. <h2 class=”paywall-full-content invisible no-summary-bullets”>Conclusion</h2> Subsequently, I think that Bank of America stands to benefit from these same forces. Consensus around the megabanks has evidently been conservative, which is sensible. Nonetheless we have seen outperformance across the board thus far, and I don’t expect the story to be any different for Bank of America. Interestingly, Bank of America stock already appreciated along with the other banks this past Friday. Each of the megabanks closed up for the week, with JPM handedly in the lead. This recent, highly correlated, price movement actually increases my conviction as to BAC’s pending earnings performance – the market seems to agree. <figure class=”regular-img-figure a-c” contenteditable=”false”><a href=”https://static.seekingalpha.com/uploads/2023/4/15/47904909-16816003042091587_origin.png” rel=”lightbox” data-width=”1008″ data-height=”525″ data-og-image-twitter_small_card=”true” data-og-image-twitter_large_card=”true” data-og-image-twitter_image_post=”true” data-og-image-msn=”true” data-og-image-facebook=”true” data-og-image-google_news=”true” data-og-image-google_plus=”true” data-og-image-linkdin=”true”><img src=”https://static.seekingalpha.com/uploads/2023/4/15/47904909-16816003042091587.png” alt=”Seeking Alpha” contenteditable=”true” loading=”lazy”></a><figcaption>Seeking Alpha</figcaption></figure> On a broader price horizon, we can note that BAC is still trading at a larger discount compared to its 52 Week High versus its peers. <figure class=”regular-img-figure a-c” contenteditable=”false”><a href=”https://static.seekingalpha.com/uploads/2023/4/16/47904909-16816623481335242_origin.png” rel=”lightbox” data-width=”1065″ data-height=”306″ data-og-image-twitter_small_card=”false” data-og-image-twitter_large_card=”false” data-og-image-twitter_image_post=”false” data-og-image-msn=”false” data-og-image-facebook=”false” data-og-image-google_news=”false” data-og-image-google_plus=”false” data-og-image-linkdin=”false”><img src=”https://static.seekingalpha.com/uploads/2023/4/16/47904909-16816623481335242.png” alt=”Seeking Alpha” contenteditable=”true” loading=”lazy”></a><figcaption>Seeking Alpha</figcaption></figure> <div class=”before_last_paragraph-piano-placeholder paywall-full-content invisible no-summary-bullets”></div> Considering all of this together, I think there is an opportune tactical trade here amidst a larger banking sector trade. I’ll be watching the tape on Tuesday to see how things play out. <div id=”highlighter–hover-tools” style=”display: none;” class=”paywall-full-content invisible no-summary-bullets”><div id=”highlighter–hover-tools–container”> <div class=”highlighter–icon highlighter–icon-copy” title=”Copy”> </div> <div class=”highlighter–icon highlighter–icon-change-color” title=”Change Color”> </div> <div class=”highlighter–icon highlighter–icon-delete” title=”Delete”> </div> </div></div>

Analyst’s Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, but may initiate a beneficial Long position through a purchase of the stock, or the purchase of call options or similar derivatives in BAC over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article. Seeking Alpha’s Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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