Q1 Preview: Wake Up, BofA (BAC)! Time to Report Earnings

Bank of America (NYSE: BAC) is a little lower heading into its first-quarter earnings report, expected out before the market opens tomorrow. Shares are down 0.5 percent this afternoon.

BofA is expected to report EPS of $0.27 with revs of $26.69 billion. Last quarter, the New York, NY-based financier reported EPS of $0.10, ex-items, on revs of $22.6 billion, missing consensus estimates calling for EPS of $0.14 and revs of $24.87 billion. Looking back at Q110, BofA posted EPS of $0.28 and revs of $32.3 billion, besting views looking for EPS of $0.10 and revs of $27.9 billion.

Shares dropped nearly six-percent in the quarter, to $13.33 at the end of March. The stock is down 0.8 percent since then, and finished-up 2010 over 14 percent lower.

BofA is currently selling with a P/E of 7.2x FY12 EPS estimates, compared with 8.4x at Citigroup (NYSE: C), 8.0x for JPMorgan (NYSE: JPM), and 8.3x at Goldman Sachs (NYSE: GS).

Data from Bloomberg has 19 analysts with a Buy on BofA, 17 with a Hold, and none suggesting to Sell. The analyst price target average is $18.30, with a high of $24 and low of $14. Shares have traded in a range of $19.86 - $10.91 over the last 52-weeks.

Summary
On Wednesday, JPMorgan reported its first-quarter earnings, and if that is any indication, BofA might have a rough Friday. JPMorgan had EPS of $1.28 and revs of $25.8 billion, both beating the consensus. CEO Jamie Dimon commented that results were due in part to improvements in its credit cards and wholesale businesses. The results weren't enough to spur buying in the stock, JPMorgan ending about 0.8 percent lower for the day.

• Wells Fargo is looking for EPS of $0.25. Wells is looking for further improvement in Cards, "but more benign performance in the consumer mortgage business. Investment banking performance should sustain a strong sequential improvement on the back of a seasonal upswing as well as increased client activity levels." The first-quarter should also be more normal for BofA.
  
  Continuing, "Spread revenue is expected to decline 3% linked quarter to $12.1B, driven by a weaker margin and a lower day count in the quarter. The margin should drift lower to 2.61% versus 2.66% in the previous quarter. After seeing a slight uptick in loans in Q4, BAC should seem some further shrinkage of the balance sheet." Average loans should be down about 1 percent. Global Wealth Management should see solid growth, Wells forecasts AUM of $660 billion at the end of the period.
  
  
• Goldman Sachs expects EPS of $0.25. Goldman issues general comments for financials in the quarter, stating that mortgage originations may be a headwind in Q1, though "historically speaking, first quarter provision expense shows significant improvement over fourth quarter provision levels in periods later in the credit cycle."
  
  Commenting on the recent dividend boost by banks, Goldman says, "We believe investor focus will shift to how and when banks will return to normalized dividend yields. Historically banks have had average payout ratios in the 40% range and dividend yields of 3%-3.5%, with the remaining capital being used for either buybacks, acquisitions or to support balance sheet growth. While payout ratios are now approximately 20% for the banks who raised their dividend, we believe the end goal is more likely a 30% payout on normalized earnings. Therefore, the question becomes “who is closest to normalized earnings?" While several regulatory uncertainties remain, including systemic capital charges, rule writing from Dodd-Frank and potential changes to the mortgage industry (including servicing, GSE’s etc), we would expect payout ratios to climb to the 30% level over the next two to three years for some."
  
  
• Deutsche Bank says NIM is expected to inflect in mid-2011 at about 2.5 percent and be range bound up to + 25 basis points. Net II in H11 expected to decline from Q410 levels from loan runoff and lower hedge results.
  
  Core commercial loans are expected to increase modestly through 2013. "Core consumer loans to be driven by on-balance mortgage originations, strategic card growth (spending volumes up 6% y/y in Feb), and wealth management."

Bank of America is expected to release their Q111 earnings on Friday, April 15, 2011, at approximately 7:00am EDT. Stay tuned to StreetInsider.com's EPS Insider section to see our analysis of the highly-anticipated quarterly results within seconds of their release.

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