Bank of America's share price soared last week as the Fed's stimulus package calmed the markets. Like other banking stocks, it has seen steep declines in the coronavirus-triggered horror show that has incinerated share prices, and investor confidence.
But will Q1 earnings incite further share price gains, or will it put a brake on things?
What's happening with Bank of America's share price?
Bank of America's [BAC] share price is down 32.9% since the start of the year. It almost goes without saying that most of the selloff occurred at the back end of February. Between 20 February and 23 March, the share price fell from $34.85 to $18.08 - a huge 48% decline.
Bank of America’s share price had rallied to a 52 week high back in January after posting solid results that beat analyst expectations. That seems like a long, long time ago, in a market very far away.
Why should investors care?
Banking stocks are fighting back
Bank of America's share price gained over 24% last week. Pushing not only BoA's stock higher, but the banking sector as a whole, was the Fed's $2.3 trillion stimulus package aimed at protecting the US economy. Investors will be wondering whether this is now priced into the share price, or if there are further gains to be had.
Bank of America share price gains over the past week
Loss of revenue
The Fed's decision to cut its target rates to 0% will affect the income BoA makes from interest. Another potential area that could be problematic is loan defaults on mortgages and credit cards. With US jobless claims reaching record levels and businesses going under, people are going to struggle to pay back debt.
The US government's interventions should mitigate some of the problems.
However, in a note to clients, David Konrad at DA Davidson argued that BoA is in a better position than its peers:
“Since the 2008 crisis, [Bank of America] has outperformed peers in terms of meaningfully reducing balance sheet risk, particularly mortgage-related credit risks and credit card risk. As a result, we believe [Bank of America’s] stock will outperform peers now trading below [tangible book value].”
What do analysts expect?
Wall Street forecasts earnings to come in at $0.48 a share, down from the $0.70 a share seen in the same quarter last year. Revenue is expected to come in at $22.76 billion, down 1.7% from the previous year.
Bank of America's expected revenue
What are the technical levels to watch out for?
The Street last week reckoned Bank of America's share price had been finding resistance at around the $23 level. However, the share price has since cleared that level, closing Monday at $23.92.
With the recent rally, a push to the mid-March high of $25.25 could now be on the cards, with a possible push to $25. The Street puts support between $20.50 to $21, followed by $19.50.
Is Bank of America a buy?
For income-seeking investors, the stock carries a 2.9% forward dividend yield. Although it shouldn't come as a shock if Bank of America suspended payouts given the current economic climate.
An average share price target of $27.10 would see a 13.3% upside. Of the 30 analysts tracking the stock on Yahoo Finance, 22 rate it either a Strong Buy or a Buy.
It almost goes without saying that the total economic effect of the coronavirus is unknown. The rallies banks have seen could be short-lived. A disappointing earnings season and looming recession could see things get worse before they get better. However, for traders in it for the long-haul, now could be the time to buy Bank of America.
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