Bank of America Bounces at Support After Strong Quarter

Bank of America Corp. (BAC) is trading higher by more than 3% in Wednesday’s pre-market after beating Q4 2021 earnings-per-share (EPS) estimates and reporting inline revenues. The banking giant posted a profit of $0.82 per-share, $0.06 higher than expectations, while revenue rose a healthy 9.8% year-over-year to $22.06 billion. The buy-the-news reaction took place at 50-day moving average support, suggesting the stock has posted a tradable low.

Named As Top 2022 Pick

Credit loss reserves improved by $542 million, with BAC recouping funds due to asset quality and macroeconomic improvements, partially offset by loan growth. Non-interest expense rose 6% to $14.7 billion, partially offset by pandemic related costs. Loan and lease balances added $10 billion to $945 billion, with the ending balance rising to $979 billion. The company traded at 15.1x forward earnings estimates ahead of the report, higher than Citigroup Inc. (C) and Well-Fargo and Co. (WFC).

Piper Sandler named Bank of America as the 2022 top pick at year’s end, adding a $57 price target last week. The institution is highly levered to rising rates that should increase overnight lending spreads and add to profits. Current consensus expects that rate increases will add $5 billion to the company’s net interest income by the end of 2023. And, although investment banking is expected to ease after a torrid 2021, it comprised 27% of revenue in the first three quarters. Continued growth in that segment should underpin performance well into 2023.

Wall Street and Technical Outlook

Wall Street consensus stands at a ‘Moderate Buy’ rating based upon 14 ‘Buy’, 2 ‘Overweight’, 8 ‘Hold’, 2 ‘Underweight’, and 1 ‘Sell’ recommendation. Price targets currently range from a low of $40 to a Street-high $64 while the stock is set to open Wednesday’s session about $4 below the median $52 target. Given this placement, Bank of America is well positioned to rally into a test of the multiyear high above $50, posted earlier this month.

Bank of America broke out above 8-year resistance in the 20s in 2016 and tested that level successfully during March 2020’s pandemic decline. The subsequent uptick mounted the Feb. 2020 peak in March 2021, ahead of a buying spike that’s reached within 5 points of the 2006 all-time high. That level marks the obvious target in this advance but keep in mind that old highs also denote major resistance that can take a long time to overcome.

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Disclosure: the author held no positions in aforementioned securities at the time of publication.