Based on total assets, Bank of America (NYSE: BAC) is one of the largest financial institutions in the world and the second largest holding company in America. It caters to a wide variety of clientele that includes individual consumers, organizations, and government entities and this is the type of diversity that is helping the company perform well even in the current market environments.
The BAC stock price is still trading near the middle of the longer-term range just above the $16 mark. One a YTD basis, this equates to a decline of 1.28% but the reality is that the stock has made some fairly consistent gains for most of that period. During the same period, the NASDAQ has risen from 4903 to above 5300, indicating a rise of 8.23%.
Chart View: Bank of America 1-Year Chart
Chart Source: ProStockMarkets
There are a few reasons for why these price swings have occurred. Relative to the benchmarks, the underperformance in BAC has been due largely to declines in revenue and profit, and then the sharp knee-jerk reactions that followed. Revenue declined by 2.2 percent in FY2015 (relative to 2014), and earnings fell by 17 percent using the same metrics. Bank of America's revenue for FY2015 was at $93.06 billion while earnings came in at $15.98 billion. Although, its quarterly revenues grew by 3.7% in the second quarter this year, earnings dropped by 5.8%. On balance, this has led to broadly negative sentiment that has been putting short-term pressure on the stock.
So while we have actually been seeing an uptrend for most of this year, there have been a few negative events that have taken most of the attention and influence the perceived strength of the company. The second wave of this activity came as investors dumped banking stocks as a whole in the month of June as concerns over global growth, falling energy prices, and low-interest rate expectations damaged the outlook. BAC stock hit a bottom near $12.18 on June 27, and since then it has seen a rise of almost 34 percent. So the real question here deals with which camp is actually correct -- the bulls or the bears?
On the bullish side, this year's rallies have come on the back of improved macroeconomic factors and more upbeat analyst expectations relative to Bank of America's ability to pass stress tests in 2016. Additionally, most analysts have shown an expectation that improved fundamentals and a still-growing economy will support the banking sector over the next 2-3 quarters.
Average estimates for BOA's earnings this quarter suggest gains of $0.34 billion (and $0.36 billion for the following quarter). But we can argue that it is much more encouraging to see that the average estimates for revenues in the current quarter revenue are $20.87 billion (and 20.75 for the following quarter). Essentially, this implies that strong bottom-line growth is expected in coming quarters and that this is something that could propel the current rally back toward the previous highs.
This is why a large majority of analysts in the sector recommend to either buy or hold the stock. Average price estimates by the end of 2016 are currently seen at 17.57, which is still 8.32% away from the current market price of the stock. When we add the supportive economic conditions that continue to show improvement, we can see that the fundamentals will help the stock in the near-term and propel the recent rallies.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.