Is Bank of America’s Stock a Buy Now?

With shares of Bank of America (NYSE:BAC) trading at around $11.47, is BAC an OUTPERFORM, WAIT AND SEE or STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

C = Catalyst for the Stock’s Movement

Let’s get to the bad news first. Bank of America still hasn’t shed its awful image. Ever since buying Countrywide Financial in 2008, Bank of America has fought to improve its image. Even more important is that this led to selling mortgages to investors like Fannie Mae and Freddie Mac, which then led to billions of dollars in losses. Management has been despised over the past few years, and the customer service rating for Bank of America is now at an 11-year low. To make matters worse, the fiscal cliff is on the horizon, and it could bring significant pain to a company like Bank of America. That’s the bad news.

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The good news holds more weight because it’s more forward looking. As we already know, the performance of the stock over the past year has been nothing short of phenomenal. If we can get through the fiscal cliff, then that trend should continue. Regardless of what happens on that front, Bank of America is making many wise decisions. Bank of America is now focused on taking care of all legal issues, selling off non-core operations, paring expenses, and getting back to lending. Despite the hatred for this company, that sounds like a company that’s making all the right moves and is headed in the right direction.

Now let’s take a look at some important numbers.

E = Equity to Debt Ratio Is Weak

The debt-to-equity ratio for Bank of America is far from impressive. However, considering the company’s challenges over the past few years, this should come as no surprise. Citigroup (NYSE:C) and JPMorgan Chase (NYSE:JPM) also have less-than-stellar debt-to-equity ratios. The balance sheet for Bank of America looks good.  

Debt-To-Equity

Cash

Long-Term Debt

BAC

2.50

$567.49 Billion

$286.53 Billion

C

2.89

$796.57 Billion

$271.86 Billion

JMP

2.89

$886.73 Billion

$263.40 Billion

 

T = Technicals on the Stock Chart Are Strong

As mentioned earlier, Bank of America has performed extremely well over the past year. A small dividend payment doesn’t hurt, either. The dividend is also likely to increase next year. That said, if you’re looking for healthy dividend payments going forward, then your best bet in this group will be JPMorgan Chase.

1 Month

Year-To-Date

1 Year

3 Year

BAC

20.83%

110.70%

113.80%

-22.57%

C

13.24%

51.01%

47.40%

18.70%

JMP

7.90%

36.18%

37.09%

10.99%

 

At $11.66, Bank of America is currently trading above all its averages.

50-Day SMA

9.93

100-Day SMA

9.22

200-Day SMA

8.63

 

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E = Earnings and Revenue Have Been Inconsistent

Back of America is still trying to work out its past failures. As this process takes place, expect to see more inconsistency in the near future when it comes to revenue and earnings.

2007

2008

2009

2010

2011

Revenue ($)in billions

119.70

113.11

150.45

134.19

115.07

Diluted EPS ($)

3.29

.54

-.29

-.37

.01

 

Looking at the last quarter on a YoY basis, we see a decrease in both revenue and earnings. This is uninspiring, yet not unexpected.

9/2011

12/2011

3/2012

6/2012

9/2012

Revenue ($)in billions

33.82

29.60

26.89

26.41

24.47

Diluted EPS ($)

.56

.18

.03

.19

0.00

 

T = Trends Might Support the Industry

You’re probably sick of hearing it, but the fiscal cliff will help determine the direction of the market. Assuming negotiations pan out, bank stocks should continue their ascent.

Conclusion

In most cases, it’s important to look at revenue growth and earnings as key indicators of future stock performance, but when you see a company forget about the near term and take a strategic approach at setting itself up for success down the road, then you know the future is likely bright.

If it was February 2013 and we had already navigated our way passed the fiscal cliff, then Bank of America would be recommended. The fiscal cliff is the only reason Bank of America is currently a WAIT AND SEE.

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