Where Will Bank of America Go Post Earnings?

With shares of Bank of America (NYSE:BAC) trading around $16, 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:

T = Trends for a Stock’s Movement

Bank of America is a financial institution serving individual consumers, small- and middle-market businesses, corporations, and governments with a range of banking, investing, asset management, and other financial and risk management products and services. With its banking and various non-banking subsidiaries throughout the United States and international markets, the company provides a range of banking and non-banking financial services and products through several business segments: consumer and business banking, consumer real estate services, global banking, global markets, global wealth, investment management, and other.

Bank of America posted a first-quarter loss on Wednesday as it set aside an extra $6 billion to cover litigation expenses, a figure that far exceeded the legal settlements the No. 2 U.S. bank has announced recently. The bank reported a net loss attributable to shareholders of$514 million, or 5 cents per share, for the first-quarter ended March 31 compared with a profit of $1.11 billion, or 10 cents per share, a year earlier. The previous quarter’s results were hit by $1.6 billion in charges related to disputes with bond insurers. ”The cost of resolving more of our mortgage issues hurt our earnings this quarter,” Chief Executive Brian Moynihan said in a statement.

T = Technicals on the Stock Chart are Mixed

Bank of America stock has been flying higher in recent quarters. However, the stock is currently pulling back and may need time to stabilize. Analyzing the price trend and its strength can be done using key simple moving averages. What are the key moving averages? The 50-day (pink), 100-day (blue), and 200-day (yellow) simple moving averages. As seen in the daily price chart below, Bank of America is trading between its rising key averages which signal neutral price action in the near-term.

BAC

Source: Thinkorswim

Taking a look at the implied volatility (red) and implied volatility skew levels of Bank of America options may help determine if investors are bullish, neutral, or bearish.

Implied Volatility (IV)

30-Day IV Percentile

90-Day IV Percentile

Bank of America Options

26.96%

49%

47%

What does this mean? This means that investors or traders are buying a significant amount of call and put options contracts, as compared to the last 30 and 90 trading days.

Put IV Skew

Call IV Skew

May Options

Average

Average

June Options

Average

Average

As of today, there is an average demand from call and put buyers or sellers, all neutral over the next two months. To summarize, investors are buying a significant amount of call and put option contracts and are leaning neutral over the next two months.

On the next page, let’s take a look at the earnings and revenue growth rates and the conclusion.

E = Earnings Are Mixed Quarter-Over-Quarter

Rising stock prices are often strongly correlated with rising earnings and revenue growth rates. Also, the last four quarterly earnings announcement reactions help gauge investor sentiment on Bank of America’s stock. What do the last four quarterly earnings and revenue growth (Y-O-Y) figures for Bank of America look like and more importantly, how did the markets like these numbers?

2014 Q1

2013 Q4

2013 Q3

2013 Q2

Earnings Growth (Y-O-Y)

-50.00%

866.67%

20%

68.42%

Revenue Growth (Y-O-Y)

-2.72%

364.48%

-1.52%

3.46%

Earnings Reaction

-2.53%*

2.26%

2.24%

2.8%

Bank of America has seen increasing earnings and mixed revenue figures over the last four quarters. From these numbers, the markets have had mixed feelings about Bank of America’s recent earnings announcements.

* As of this writing

P = Excellent Relative Performance Versus Peers and Sector

How has Bank of America stock done relative to its peers, JPMorgan Chase (NYSE:JPM), Wells Fargo (NYSE:WFC), Citigroup (NYSE:C), and sector?

Bank of America

JPMorgan Chase

Wells Fargo

Citigroup

Sector

Year-to-Date Return

2.41%

-6.14%

7.56%

-8.37%

-2.13%

Bank of America has been a relative performance leader, year-to-date.

Conclusion

Bank of America is a bank and financial services giant that operates in a recovering financial industry, the backbone of the United States economy. The company posted a first-quarter loss on Wednesday as it set aside an extra $6 billion to cover litigation expenses. The stock has been exploding to the upside in recent quarters, but is currently pulling back. Over the last four quarters, earnings have been increasing while revenues have been mixed, which has produced mixed feelings among investors. Relative to its peers and sector, Bank of America has been a year-to-date performance leader. WAIT AND SEE what Bank of America does this quarter.

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