Earnings season is ramping up this week, and financials are unloading with their heavy hitters early. Yesterday we looked at potential earnings-related trading ideas for Wells Fargo & Co (WFC) and JPMorgan Chase & Co. (JPM), and today we are going to zero in on fellow financial giants Bank of America Corp (BAC) and Citigroup Inc (C).
So, without further ado, here’s a look at these two bank stocks:
Bank Stocks: Bank of America
Wall Street will be looking for earnings of 31 cents per share when Bank of America steps up to release its fourth-quarter earnings on Thursday morning. Expectations may be a bit higher among the brokerage community, however, as with EarningsWhisper.com reports a whisper number of 35 cents per share for BofA.
This bullish sentiment is pervasive in BAC stock’s backdrop. Thomson/First Call reports that BofA has attracted 17 “buy” ratings versus eight “holds” and three “sell” ratings.
There is room for improvement, however, as the consensus 12-month price target for BAC stock rests at $18.75, representing a premium of only about 12% to yesterday’s close.
Click to EnlargeChecking in with options traders, we find a rather neutral opinion on BAC stock. Specifically, the security’s January put/call open interest ratio of 0.91 indicates that calls are in near parity with puts among options set to expire at the end of the week.
This ratio slips to a reading of 0.86 when taking into account February options, which expire next month.
Overall, January implieds are pricing in a potential post-earnings move of about 3.6% for BAC stock. This places the upper bound at $17.10, just shy of potential resistance at BAC’s 50-day moving average. The lower bound, meanwhile, lies at $15.90, well below the stock’s 200-day moving average and potential support in the 16 region.
Those looking to side with the bulls heading into BofA’s fourth-quarter report might want to consider a Feb 16/18 bull call spread. At the close of trading on Monday, this spread was offered at 88 cents, or $88 per pair of contracts. Breakeven lies at $16.88, while a maximum profit of $1.12, or $112 per pair of contracts, is possible if BAC closes at or above $18 when February options expire.
Bank Stocks: Citigroup
Fellow financial concern Citigroup will follow BofA into the earnings limelight on Thursday morning, with Wall Street looking for a profit of 10 cents per share. In a rare turn of events, the whisper number for Citigroup’s quarterly report arrives a penny below the consensus at 10 cents per share, hinting at low expectations.
Data from Thomson/First Call would belie that bearish tone, however. For instance, C stock has attracted 18 “buy” ratings from the brokerage community, compared to nine “holds” and no “sell” ratings. Additionally, the stock’s 12-month consensus price target of $60 per share arrives roughly 20% above yesterday’s close.
Click to EnlargeLike BofA, however, options traders are quite neutral when it comes to C stock’s near-term prospects. In fact, the January put/call open interest ratio of 1.09 indicates that call open interest is nearly equal to put open interest heading into Citigroup’s quarterly report.
The story remains unchanged when we factor in February options, as the put/call ratio slips negligibly to 1.04.
Overall, January implieds for C stock are pricing in a potential post-earnings move of about 3%. This places the upper bound at $52, while the lower bound lies at $49.
A post-earnings rally would still leave C staring up at its 50-day moving average, while a decline could send the stock below key support at its 200-day trendline.
Currently, C stock is oversold and trading near support at its 200-day moving average. Furthermore, judging by the whisper number, the bar has been set relatively low for Citigroup’s quarterly report. As such, traders looking to position themselves ahead of Citigroup’s earnings might want to consider a Feb 50/52.50 bull call spread.
At the close of trading on Monday, this spread was offered at $1.14, or $114 per pair of contracts. Breakeven lies at $51.14, while a maximum profit of $1.36, or $136 per pair of contracts, is possible if C closes at or above $52.50 when Feb. options expire.
As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.
