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How Often Does Bank of America Beat Earnings Estimates?

By John Maxfield – Jul 8, 2016 at 12:03PM

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More often than not.

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With the ongoing turmoil from the United Kingdom's Brexit vote two weeks ago combined with the recently released results from this year's stress tests, it'd be easy to overlook that second-quarter earnings season is nearly upon us.

As seasoned investors know, it's not necessarily how well a company performs each quarter on an absolute basis that matters most for its stock price in the wake of earnings, but rather how well the company performs relative to analyst expectations. It's with this in mind that I decided to kick off my coverage of the second-quarter earnings season by looking at how often the banks that I cover beat the consensus estimate.

The first bank up is Bank of America (BAC -0.18%). To say that the nation's second biggest bank by assets has struggled over the past few years would be an understatement. Thanks to low interest rates and roughly $200 billion worth of added costs stemming from the financial crisis, Bank of America hasn't generated positive shareholder value for nearly a decade.

It came close last year, which was the first time since the crisis that it reported respectable earnings in four consecutive calendar quarters. But even then, its return on average common shareholders' equity was only 6.3%, which is roughly half its 12% cost of equity capital -- to create shareholder value, the former must exceed the latter.

So, how is Bank of America expected to do in the second quarter of this year? The consensus among analysts is that it will earn $0.36 per share, according to Yahoo! Finance. That compares to per-share earnings of $0.45 in the second quarter of last year.

The year-over-year drop is obviously disappointing. However, as I've already said, what matters more for its share price in the short-term is whether or not it's likely to miss or exceed analyst estimates. Fortunately, if the past is any indication, it seems more likely than not that it will beat current forecasts.

Since the first quarter of 2011, Bank of America has beaten analyst expectations in 17 out of 21 quarters, or 81% of the time. Whether it's able to do so this time, of course, remains to be seen -- though, one thing going in its favor is the fact that analysts have tempered their expectations over the past three months.

Ninety days ago, the consensus estimate for Bank of America's second-quarter earnings per share was $0.38. This dropped to $0.37 per share a month later. And just recently it dropped again to $0.36 per share. This is accordingly the number that investors will want to watch for when Bank of America reports earnings on July 18.

John Maxfield owns shares of Bank of America. The Motley Fool recommends Bank of America. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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$32.38 (-0.18%) $0.06

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