Bank of America Corp (BAC) Q4 Earnings Preview

Advertisement

BAC - Bank of America Corp (BAC) Q4 Earnings Preview

Source: Mike Mozart via Flickr

Bank of America Corp (NYSE:BAC), a Dow Jones Industrial Average constituent and the country’s second largest financial institution, reports fourth-quarter earnings Friday morning. The big question that awaits: Will BofA’s corporate confessional be enough to drive BAC stock even higher, or will the mega-bank miss expectations?

Bank of America Corp (BAC) Q4 Earnings Preview

We’ll take a look at recent announcements from Bank of America, BAC’s stock chart and what the options market is suggesting to traders.

Bank of America’s Earnings Picture

Ahead of Bank of America’s Q4 earnings release, analysts are forecasting profits of 38 cents per share. Range estimates are from 35 cents to 42 cents.

Wall Street expectations imply an increase of 35% in earnings growth over the year-ago period’s result of 28 cents and a sequential decline of 7.25%. Revenues are estimated to grow by 7% to $20.9 billion compared to 2015’s sales of $19.5 billion. Sequentially, BAC is forecast to decline modestly by 3%.

Most recently, Credit Suisse chimed in on BAC stock and other financials such as JPMorgan Chase & Co. (NYSE:JPM) and Wells Fargo & Co (NYSE:WFC) with a bullish stance. Unsurprisingly, they see an improving yield curve, GDP and more supportive regulatory environment as translating into upwardly-revised top and bottom-lines.

Short-Term Trading Record for BAC Stock

Bank of America has established a consistent pattern of beating Street profit views by topping estimates in 9 of its last 12 reports. Investor reaction has proven even stronger. Shares have gained immediately following earnings in five of the past six announcements.

Working backwards from the most recent release, BAC has moved 0.31%, 3.32%, 2.57%, -1.54%, 0.79% and 3.22% on a close-to-close basis. The net reaction has produced an average gain of 2.19% in the first full session of trading.

Variability of 2.02% based on a one-standard-deviation reading yields an estimated range of 0.02% to 4.21%. BAC’s seven-day stock performance has shown a similar net positive result 83% of the time. The average gain has been 3.29%, though a higher standard deviation of 5.69% sets up a bumpier range of -2.40% to 8.98%.

BofA’s Stock Chart

Bank of America (BAC) stock chart view 1
Click to Enlarge
Source: Charts by TradingView

What’s also apparent is an overbought condition in Bank of America shares. Weekly stochastics now are turning lower from extremes. The aggressive way in which BAC stock climbed to its current levels are typically exhaustive and lead to backing and filling.

Technically, the expectation is for BAC’s current lateral consolidation to give way to a minor corrective move — one likely prompted by this week’s earnings release.

BAC Options Pricing

Behind the scenes, implied and underlying volatility in BAC have seen a widening of this price spread. Option premiums have moved toward one-year highs in front of Friday’s earnings event as stock movement has contracted during the past few weeks.

Reflecting Monday’s closing prices, the at-the-money 13 Jan $22.50 straddle market points to a 68% chance BAC will remain within an approximate price range of $21.45 to $23.60 into Friday’s expiration. The math behind this calculation is based on implied volatility of 44% with four trading sessions remaining.

The weekly contract is the purest play on the earnings event. Even during quiet conditions like BAC is currently witnessing, premiums reflect what traders collectively expect to happen in shares of Bank of America in the immediate aftermath of its quarterly announcement.

The dollar move up or down works out to wiggle room of about 4.6% in BAC by Friday’s close.

Given recent past reactions, it appears options traders mostly believe it will be business as usual when BAC opens its doors Friday.

Investment accounts under Christopher Tyler’s management do not currently own positions in any of the securities or their derivatives mentioned in this article. The information offered is based upon Christopher Tyler’s observations and strictly intended for educational purposes only; the use of which is the responsibility of the individual. For additional market insights and related musings, follow Chris on Twitter @Options_CAT.

The information offered is based upon Christopher Tyler’s observations and strictly intended for educational purposes only; the use of which is the responsibility of the individual. For additional market insights and related musings, follow Chris on Twitter @Options_CAT and StockTwits.


Article printed from InvestorPlace Media, https://investorplace.com/2017/01/bank-of-america-corp-bac-stock-q4-earnings-preview/.

©2024 InvestorPlace Media, LLC