Bank of America Corp (BAC) Stock Looks Like a Buy Ahead of Earnings

The strong post-election bull run in Bank of America Corp (NYSE:BAC) stock has hit some turbulence. BAC stock has pulled back almost 8% from March highs, even with a recent bounce. And since early February, BAC stock has seen increased volatility and choppy trading.

For the most part, the recent trading looks like short-term noise. I argued a month ago that the long-term case for BAC stock remained intact. That’s still the case heading into Bank of America’s first-quarter report on Monday.

Bank of America Corp (BAC) Stock Looks Like a Buy Ahead of Earnings

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Rather, the pullback toward $30 looks like it’s giving investors another opportunity to get into BAC at an attractive price. And, with earnings season likely to remind investors of the bull case here, I expect Monday’s report to be an upside catalyst for Bank of America stock.

A Choppy Market

Big bank stocks like BAC tend to track the market as a whole, so the volatility of the past few weeks makes some sense. Broad markets have been choppy and more volatile; Bank of America stock has been the same.

But, the fears driving recent volatility are mostly forward-looking — and external. Whether it’s concerns about a trade war or higher Treasury yields, investors, for the most, part aren’t worried about specific stocks. They’re worried about the market as a whole.

The good news is that earnings season is on the way — and it starts with the big banks. Citigroup Inc (NYSE:C), Wells Fargo & Co (NYSE:WFC) and JPMorgan Chase & Co. (NYSE:JPM) all report on Friday. BofA follows on Monday, and those earnings should contain quite a bit of good news for the sector as a whole and for Bank of America in particular.

Why Earnings Should Help BAC Stock

After all, unemployment is exceedingly low, and wages are creeping up. Both of those factors should keep default rates low. Interest rates are finally rising. While that has rattled the markets a bit, it’s undoubtedly good news for bank stocks, which will benefit from higher net interest margins. Tax reform will help earnings in 2018, which could lead to more economic activity and more revenue.

For Bank of America, the news should be particularly good. Volatility in the markets actually could be a good thing for trading revenue in the Merrill Lynch unit, although the benefits might not be seen until Q2. BofA’s credit metrics already were in good shape, which give it room to increase lending going forward. Tax reform means EPS should be very strong in the quarter: analysts are looking for 44% growth in the quarter, and 36% for the year.

The good news surrounding Bank of America stock largely has been forgotten over the past couple of months. But, I expect Monday’s report will change that and send BAC stock higher.

Bank of America Stock Looks Strong Long-Term, Too

The good news for Bank of America stock is that the bull case here isn’t just short-term. Back near $30, BAC trades at less than 11x 2019 consensus EPS. That’s a multiple that suggests either growth will decelerate sharply and quickly, and/or the economy is going to turn south.

I don’t believe either will be the case. And, with Bank of America likely to ramp up its dividend again later this year, a cheap valuation, and a diversified asset base, I think it’s the best play in the sector. JPM has a strong case, as I wrote last month, and even Goldman Sachs Group Inc (NYSE:GS) looks attractive as well.

But, Bank of America has plenty of room for improvement at Merrill Lynch, in both trading revenue and on the fixed-income side. The credit card business has room for improvement as well. There’s organic growth potential in addition to the coming tailwinds from higher interest rates and a strong economy.

There’s simply a lot to like here. At less than 11x forward EPS, that includes the price, too. A solid earnings report from Bank of America will re-establish the bull case and, in the least, should send the stock past its recent highs over the next few months.

As of this writing, Vince Martin did not hold a positions in any of the aforementioned securities.

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