Bank of America raised its earnings forecast. Why did the stock fall?

Bank of America, the second largest U.S. bank by assets, raised its long-term profit growth forecast, but it was not enough to inspire investors: the bank's shares fell in price by 1.4%. In BofA's long-term forecast, the lower end of the profit growth range was lower than the current profit growth, which is what the market reacted to, MarketWatch explains.

According to BofA's new expectations, its net interest income (the difference between loan income and deposit costs) will grow at an average annual rate of 5-7% between 2026 and 2030. By comparison, it grew at 4% per year from 2015 through 2024.

The bank revised its outlook after massive investments in technology: it has spent $118 billion over the past 10 years, including spending on artificial intelligence and virtual assistant Erica, which has reduced the burden on call centers. In addition, profitability is boosted by the revaluation of assets on its balance sheet, which has reduced interest payments.

Since the beginning of 2025, BofA's net interest income has already been growing at 6%, meaning the new forecast only reinforces the current pace - and even suggests the possibility of a decline to 5%, MarketWatch writes.

Bank of America also raised its medium-term target range for return on tangible tangible equity (ROTCE) to 16-18% per year, up from earlier expectations of growth around the 14-16% range. ROTCE reflects the return on capital allocated to loans and investments. In the third quarter, ROTCE was 15.4%.

The data were included in a 300-page presentation for Bank of America's first investor day since 2011. After their publication shares of BofA fell by 1.4% to $52.8. Since the beginning of the year, the bank's securities remain up more than 20%. By comparison, the Financial Select Sector ETF SPDR has gained 8.5% over the same period, MarketWatch notes.

KBW analyst Christopher McGretty reiterated an "outperform" rating on BofA shares, noting that the new ROTCE target range is in line with expectations. However, he said the exact timing of reaching that level within three to five years could be a topic of discussion at the Q&A session.

Through Wednesday's trading, the bank's shares had gained 9.6% since Oct. 13, outperforming universal bank securities by 4.2%, McGretty noted. Given this "rapid growth," further momentum is likely to depend on clarification on the timing of the ROTCE target and general comments from management, he added.

A total of 27 analysts track the bank's stock, according to MarketWatch. Of those, 21 recommend buying them, five recommend holding them in a portfolio, and only one recommends selling them. The Wall Street consensus price target is $58.6, up 9.5% from the closing price on Nov. 4.

This article was AI-translated and verified by a human editor