Bank of America (NYSE:BAC) Stock Falls 4.7% Following Weak Earnings

Key Points

• Bank of America shares fell 4.7% after quarterly adjusted EPS of $1.08 and revenue of $29.96 billion missed analyst expectations, while higher credit-loss provisions and weaker investment banking and trading revenue added pressure.
• A more than $1.2 billion regulatory penalty tied to anti-money-laundering and sanctions violations significantly reduced net income and raised additional reputational and potential litigation risks.
• Underlying operations remained relatively solid: net interest income, deposits, loans, consumer banking, and wealth-management revenue increased, while the quarterly dividend rose to $0.32 per share. Analysts nevertheless maintained a “Moderate Buy” consensus with a $64.22 average price target.

Shares of Bank of America Corporation (NYSE:BAC) dropped 4.7% during trading on Wednesday after the company announced weaker than expected quarterly earnings. The stock traded as low as $49.26 and last traded at $51.4030. Approximately 115,487,841 shares changed hands during mid-day trading, an increase of 207% from the average session volume of 37,581,672 shares. The stock had previously closed at $53.96.

The financial services provider reported $1.08 EPS for the quarter, missing the consensus estimate of $1.10 by ($0.02). The firm had revenue of $29.96 billion during the quarter, compared to analysts' expectations of $30.58 billion. Bank of America had a net margin of 17.56% and a return on equity of 12.20%. The firm's revenue was up 3.2% compared to the same quarter last year. During the same quarter last year, the company posted $1.06 EPS.

Bank of America Increases Dividend

The firm also recently announced a quarterly dividend, which was paid on Friday, September 25th. Shareholders of record on Friday, September 4th were paid a dividend of $0.32 per share. This is a boost from Bank of America's previous quarterly dividend of $0.28. The ex-dividend date of this dividend was Friday, September 4th. This represents a $1.28 annualized dividend and a yield of 2.5%. Bank of America's dividend payout ratio (DPR) is presently 29.36%.

Bank of America News Roundup

Here are the key news stories impacting Bank of America this week:

• Positive Sentiment: Underlying banking trends were relatively solid: net interest income rose 8% year over year to $16.4 billion, average deposits increased 2% to $2.02 trillion, and average loans and leases grew 6% to $1.23 trillion. Bank of America Reports $6.9 Billion Third-Quarter Net Income
• Positive Sentiment: Consumer banking revenue rose 4% and global wealth and investment management revenue increased 13%; Merrill Lynch’s fee-based advisory assets reached a record $1.9 trillion. The bank also returned $8.3 billion to shareholders through dividends and repurchases. Merrill Lynch’s Fee-Based Advisory Assets Just Hit a Record $1.9 Trillion
• Positive Sentiment: An institutional investor purchased a large block of long-dated BAC call options, signaling that some investors see potential value after the selloff. Unusual LEAP Call Options in Bank of America
• Neutral Sentiment: Bank of America CEO Brian Moynihan said the company is committed to fixing regulatory deficiencies. The bank hired about 1,000 contractors to help 3,000 employees patch software weaknesses, with management expecting those costs to decline over time. Bank of America Hired 1,000 Contractors to Patch Software Flaws
• Neutral Sentiment: Hotter-than-expected September inflation pushed Treasury yields higher and pressured the broader market, adding to the negative trading environment for financial stocks. Hotter CPI Sends Futures Lower as Yields Jump
• Negative Sentiment: U.S. regulators imposed more than $1.2 billion in penalties, including the OCC’s largest-ever bank fine, after citing failures to report over $5 billion in suspicious transactions and additional sanctions violations. The charge was non-tax-deductible and significantly reduced quarterly earnings. Bank of America Hit With More Than $1.2 Billion in Penalties
• Negative Sentiment: Third-quarter net income fell to $6.9 billion, or $0.91 per diluted share, while adjusted EPS of $1.08 missed the $1.10 consensus estimate and revenue of roughly $30.0 billion trailed expectations. Investment banking and trading revenue also weakened, while credit-loss provisions rose to $1.3 billion. Bank of America Profit Hurt by $1.2 Billion Fine
• Negative Sentiment: Several law firms announced shareholder investigations, adding reputational and potential litigation risks, although such announcements do not necessarily indicate that claims will succeed. Securities Fraud Investigation Into Bank of America

Wall Street Analyst Weigh In

A number of analysts have recently issued reports on the stock. Citigroup increased their price target on shares of Bank of America from $62.00 to $66.00 and gave the stock a "buy" rating in a research report on Tuesday, June 23rd. Morgan Stanley reaffirmed an "overweight" rating on shares of Bank of America in a research report on Tuesday, September 15th. Rothschild & Co Redburn set a $72.00 price objective on shares of Bank of America in a research note on Tuesday, October 6th. Truist Financial dropped their price objective on shares of Bank of America from $65.00 to $62.00 and set a "buy" rating on the stock in a research note on Thursday, October 1st. Finally, Jefferies Financial Group cut their target price on shares of Bank of America from $75.00 to $70.00 and set a "buy" rating for the company in a research report on Thursday, September 24th. Nineteen investment analysts have rated the stock with a Buy rating and seven have given a Hold rating to the stock. According to data from MarketBeat.com, the stock presently has a consensus rating of "Moderate Buy" and a consensus target price of $64.22.

Institutional Investors Weigh In On Bank of America

Several large investors have recently made changes to their positions in the company. Legal & General Group Plc bought a new position in Bank of America during the second quarter worth about $2,571,060,000. Amundi increased its position in Bank of America by 12.5% during the first quarter. Amundi now owns 42,385,115 shares of the financial services provider's stock worth $2,066,274,000 after buying an additional 4,721,969 shares during the last quarter. Deutsche Bank AG acquired a new position in Bank of America during the second quarter worth approximately $2,359,172,000. Bank of New York Mellon Corp bought a new stake in Bank of America in the second quarter valued at approximately $2,313,953,000. Finally, Dimensional Fund Advisors LP raised its stake in Bank of America by 1.8% in the first quarter. Dimensional Fund Advisors LP now owns 31,135,112 shares of the financial services provider's stock valued at $1,517,599,000 after buying an additional 561,413 shares during the period. Institutional investors own 70.71% of the company's stock.

Bank of America Stock Down 4.7%

The stock has a market cap of $359.45 billion, a P/E ratio of 11.79, a price-to-earnings-growth ratio of 0.88 and a beta of 1.21. The firm has a 50 day simple moving average of $59.75 and a 200-day simple moving average of $56.67. The company has a quick ratio of 0.82, a current ratio of 0.83 and a debt-to-equity ratio of 1.23.

About Bank of America

Bank of America Corporation NYSE: BAC is a diversified financial services company serving individual consumers, small businesses, middle-market companies and large corporations. Its principal businesses include consumer banking, wealth and investment management, commercial banking, corporate and investment banking, and sales and trading.

Through its banking and financial services businesses, the company offers deposit accounts, credit cards, mortgages, home equity products, consumer and business loans, payment services, treasury management, brokerage services and investment advice.

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