Financial sector results were mixed this quarter, but Bank of America (NYSE:) stands out. The company’s focus on U.S. retail banking and the interest rate environment has set it up for earnings growth, which is already showing in the results.
The company reported sound and beat the consensus by more than 500 basis points on the strength of net interest income. Net interest income is driven by continued growth in loans and deposits and is supported by what appears to be relatively healthy consumption and rising interest rates.
Chief Financial Officer Alastair Borthwick said:
“Net interest income increased $1.4 billion from the prior year quarter, supported by strong growth in loans and deposits. With the expectation of higher interest rates on the forward curve, we expect to take further advantage of our deposit allowance.”
Bank of America puts in a background
The financial sector and Bank of America entered a correction on fears of inflation, slowing growth and a weak consumer, but these fears have not materialized so far. Bank of America’s first quarter results are strong enough to bottom the market, and we believe that will lead to a reversal.
Bank of America reported net income of $23.2 billion, a 1.7% gain over last year and beat Marketbeat.com consensus by $0.110 billion, or about 475 points basic. The gain was driven by a 13% increase in average deposits and an 8% increase in average loan and lease balances which contributed to net investment income.
The company also saw some growth in most other segments, with Global Banking and Global Markets the only ones to show a decline. In the end, the $0.80 GAAP beat out $0.05. Since Bank of America released its first quarter results, there have been no analyst comments, but they are on the way.
The Marketbeat.com consensus rating is a Buy with a target price over 30% above the current price. Although the analyst’s price targets have softened a bit ahead of the report, the 12, 3 and 1 month comparisons, and we believe they will trend higher for at least the next few months.
The outlook for interest rate hikes is only getting more aggressive, which will ultimately boost this bank’s earning power.
The technical outlook: Bank Of America hits rock bottom
Price action at Bank of America began bottoming out in early March, and it looks like they are now completing the move. The price action slid to the $37.50 level, but buyers stepped in and pushed it back up, confirming support at the $38.00 level. This move looks like a Double Bottom to us, which is confirmed by the stochastic.
The stochastic shows a strong buy signal which will be confirmed if (when) the price action increases. In this scenario, we see this stock rising to the $41.20 level and then to the $44.00 level, where it will have to break above the base line of the pattern to go higher. A move above this level would be very bearish and could come later in the year if the FOMC does not trigger a recession and a hard landing when it starts raising rates.