Second-quarter earnings season kicks off with a bang this upcoming week, as several U.S. banking giants provide earnings reports that Wall Street hopes will spur the next upleg in the current bull market. Among those slated to report is industry leader Bank of America Corp (NYSE:BAC).
BAC stock traders will want to take note. The stock is looking primed for a breakout after rallying for the past two weeks, driven higher by a 60% dividend hike and a $12 billion stock repurchase program.
Technically, Bank of America has been itching to break above key short-term resistance at $25 for the better part of the past week. BofA shares last tested this region just prior to their first-quarter earnings report back in March, which saw BAC soar to highs last seen in early 2008.
Click to Enlarge Unlike March, however, BofA’s rally this time is much more controlled. With a little less froth in the water, BAC stock should be able to take out $25 and extend its bull run following next week’s quarterly report.
Speaking of which …
Wall Street is expecting a profit of 43 cents per share from Bank of America, up about 4.8% from the same quarter last year. Revenue is expected to rise 5.4% year over year to $21.91 billion. However, expectations appear to be considerably higher, as EarningsWhispers.com puts the second-quarter whisper number at 48 cents per share, 5 cents better than the consensus.
This optimism is also rampant in the brokerage community, where Thomson/First Call reports that 22 of the 31 analysts following BAC stock rate the shares a “buy” or better. Still, the 12-month consensus price target of $26.39 could use some upward adjustment, as it rests just 7.3% above the shares’ current perch.
Options traders are also quite bullish on BAC stock, especially when it comes to earnings. Currently, the July put/call open interest ratio arrives at 0.5, with calls doubling puts among those options most affected by next week’s quarterly report.
Implieds, meanwhile, are pricing in a move of about 3.6% following next week’s earnings report. That places the upper bound at $25.15, while the lower bound rests at $23.27.
For regular readers, if you got into the Jul $24/$25 bull call spread I recommended back on June 14, you are sitting pretty with a gain of about 50% on the trade. The maximum profit on this trade is just around the corner if you have the risk tolerance to hold on. If not, taking profits now isn’t such a bad thing.
Especially if you plan to roll some of those winnings into today’s trade.