Business model gaining strength.
Share buyback in the quarter at $2.3B will keep a floor on the stock price, increasing book value.
Ignore the Noise, Bank Of America’s Earnings show the economy is doing just fine.
Bullish investors got the information they were looking for when Bank of America (NYSE:BAC) beat the street with net earnings of $.41 cents a share; hitting my pre-announcement target on the head. The consolidation period from huge rally is nearing completion and in my view the train is about to leave the station with the first stop at $25.
I wrote a piece the day before the conference call sharing my viewpoint that BAC was a buy into earnings and that it might be the last chance to get the stock under $22.50. I wanted to wait a day or two to let things shakeout a little before sharing my opinion on the quarter. So far that mini thesis is working out as planned.
My takeaway from the call
Net income increased 40% to $4.9 billion, and EPS increased 46% to $0.41, compared to $3.5 billion and $0.28. These are some nice numbers for a change; 40% growth is the envy of any company let alone a behemoth like Bank of America. This comes on a day where Goldman Sachs (NYSE:GS) missed earnings on weak trading, hobbling the market in a sell off day.
Share buy back
I advised investors to pay close attention to the share repurchase program and I was not disappointed with the results. The company bought back $2.3B of stock in the quarter lowering their share count to 9.97B shares of common stock. One year ago the bank had 10.31B outstanding shares, that is a whopping 341M shares repurchased in a year. In my view that is a very bullish sign for the company going forward.
Net interest income (NII) increased $453 million, driven by strong deposit growth. Talk on the street is Bank of America has the best upside exposure to a rise in rates.
If you’re in the camp of believing that the FED will continue normalization of rates then this is a bullish sign.
I am forecasting one more rate hike this year unless congress passes health care reform on or near the August recess; in which case the market could see two rate increases by year end. Either way one can see that the trend is likely up which will benefit future earnings.