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Real Time Insight

With another earnings season pretty much over, investors have begun to assess the winners and losers for Q1 results. One surprising winner has been financials, as this segment has seen strong year-over-year growth on the earnings front, and solid growth in terms of revenues as well.

However, every company in the space hasn’t been so lucky, as a few have seen decidedly lackluster reports. One bellwether that has definitely fallen into this category is Bank of America (BAC - Analyst Report).

The company barely met sales estimates for the past quarter, but missed earnings by three cents a share, with profits of just 20 cents per share. Immediately following the report, shares fell about 5%, though the company has easily rebounded and is back at 52 week highs once more.

Yet while shares of BAC may have been able to shrug off the weak earnings report in relatively short order, questions remain for the company in the near term. Other corners of the financial world are starting to take leadership in the space, while the earnings estimate picture isn’t exactly favorable at this point in time.

Still, BAC has proven to be quite resilient as of late and there are some positive trends appearing in key corners of the bank’s operations. These include strong mortgage originations, setting aside less for bad loans, and better news from their Merrill Lynch division.

In other words, BAC’s outlook is quite mixed and the company could go either way in the near term. But what do you think, are you a buyer or seller of BAC at these levels?

Reasons to Buy:

  • The Banks-Major Regional industry is quite strong from a Zacks Industry Rank perspective. Currently, the space is in the top third of all industries, suggesting that it is in good company.
  • Earnings growth (year-over-year) for the full year period is quite impressive (triple digits), so there is definitely reason to believe that BAC is back on track.
  • Despite this projected earnings growth, the PEG is still quite good coming in below 0.9. This is extremely favorable when compared to the broad industry which has a PEG of 1.27.

Reasons to Sell:

  • Year-over-year sales growth is expected to be more or less flat. It may be hard to grow earnings at a tremendous pace without some more top line growth.
  • The earnings estimate picture isn’t exactly favorable, either in the short or long term. For the current year, in the past 30 days, 12 estimates have gone down while only 2 have gone up.
  • The stock has a Zacks Rank #3 (Hold) in a top industry. This means that there are other, higher ranked options in the same space that could be better choices such as (JPM - Analyst Report) or (FITB - Analyst Report).

So what do you think; will BAC continue to rebound, or is the company approaching a top given some of the headwinds on the horizon?

Let us know in the comments below!

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