Bank of America (BAC) Hits New Highs on Q4 Results

Despite falling short of revenue expectations last quarter, and back-sliding on one key measure, Bank of America (BAC) has pressed into new 52-week high territory on Friday following the release of its fourth quarter numbers.

For the quarter ending in December, earned 40 cents per share on revenue of $20.0 billion. Those figures were up 48% and 2.2%, respectively, on a year-over-year basis, when BofA reported a profit of  27 cents per share on a top line of $19.56 billion. Earnings topped expectations of 38 cents per share, though the same pros were calling for a top line of $20.96 billion.

All the same, BAC investors (current and prospective) saw the glass as half full rather than half empty. BAC shares advanced 1.7%, reaching a new multi-year high in the process.  

As was widely hoped/expected, higher interest rates helped the bank become more profitable.

The company noted in October that a 100 basis point rise in interest rates could add as much as $7.5 billion in annual net income, as the difference between the cost of money and lending that money widens. Those interest rates -- long-term and short-term -- grew approximately 60 basis points during the quarter in question. Though they didn't meaningfully rise until the quarter was halfway over, it was still enough to spur a 6% increase in net interest income -- to $10.3 billion -- for the quarter in question. Loan balances were up 2.0%.

It wasn't just a more favorable interest rate environment that boosted the bottom line though. The rip-roaring quarter for stocks that was spurred by a surprising (and bullish) outcome of the Presidential election sent traders into something of a frenzy. Fixed income trading revenue was up 12%, and equity trading revenue grew 7%. The combination of the two generated $2.8 billion worth of revenue.

The one sore spot may have been the banks return on tangible common equity, or 'ROTCE' for short. Bank of America has been aiming for a ROTCE reading of 12%, and managed to grow that figure to 10.3% in Q3. For the fourth quarter though, it peeled back to only 9.9%.

Still, some would say Bank of America is slightly too well capitalized, and has more common equity that it needs, artificially pushing the number lower.

It wasn't a concern on Friday, though, as investors determined that the forward-looking P/E of 14.0 was not only palatable, but likely to underestimate the bank's 2017 results. BAC shares are overbought and ripe for a pullback.... quite a bit, actually. In light of the underlying fundamentals though, any sizeable pullback is apt to be met with an equally sizeable rebound.

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