Michael Fowlkes' Analyst Insights
Options and ETF Analyst Writer
January 9, 2017 - Bank of America Reports Q4 Earnings January 13
Bank of America (BAC) is scheduled to report its fourth-quarter numbers on January 13. Wall Street is calling for earnings of $0.38 per share, up from $0.28 during the same period last year. The stock has gained 34.8% over the last twelve months.
BAC was recently trading at $22.69, just $0.70 below its 12-month high and $11.70 above its 12-month low. Overall technical indicators for BAC are bullish with a strong upward trend. The stock has recent support above $21.75, and recent resistance below $23.40. Of the 19 analysts who cover the stock, 11 rate it a “strong buy”, three rate it a “buy”, and five rate it a “hold”. The stock receives S&P Capital IQ’s 4 STARS “Buy” ranking.
Like all of the major bank stocks, Bank of America has enjoyed strong gains over the last two months. Between Trump’s victory in the presidential election, and the Federal Reserve finally moving to lift rates, expectations are high that the financial sector will continue to strengthen in 2017. BAC is now trading near its 52-week high, but its valuation remains attractive with a P/E of 16.6. Analysts forecast that earnings will rise 12.3% in 2017, but if we see one or more interest rate increases though the course of 2017, earnings growth will be sharply higher than what has already been priced into the stock, and given the current valuation there is a good chance that BAC will build on its recent gains. The Street has a whisper number of $0.39, which is a penny above the consensus, and if the company is able to hit that number the stock should gap higher and rise to a new 52-week high.
Stock Only Trade
If you're looking to establish a long stock position in BAC, consider buying the stock under $22.75. Sell if it falls below $20.50 or take profits if it gets to $26.25.
If you want a bullish hedged trade on the stock, consider a March 15/20 bull-put credit spread for a 25-cent credit. That's a potential 5.3% return (27.4% annualized*) and the stock would have to fall 10.8% to cause a problem.
If you want to take a bearish stance on the stock at this time, consider a February 25/28 bear-call credit spread for a $0.30 credit. That's a potential 11.1% return (96.6% annualized*) and the stock would have to rise 11.5% to cause a problem.
Covered Call Trade
If you like the stock, but wish to lower your cost basis on a new position, you may want to consider a March $23.00 covered call. Buy BAC shares (typically 100 shares, scale as appropriate), while selling the March $23.00 call for a debit of $21.60 per share. The trade has a target assigned return of 6.5%, and a target annualized return of 34.5% (for comparison purposes only).
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