Now Is the Time to Buy Bank of America, Ahead of Earnings

TheStreet.com

NEW YORK (TheStreet) -- The last time we talked about Bank of America , I said that the stock looked fairly priced.

This was more than two months ago, when the stock was trading at around $13. Since then, its shares have not moved. With second-quarter earnings due out on July 17, there are reasons to be more optimistic about the bank's upcoming results. (Shares were trading at $13.93 Tuesday morning.)

The Street will be looking for revenue of $22.78 billion, a 3.7% year-over-year revenue growth, while the bank is expected to report 25 cents per share in earnings. But revenue and EPS growth alone should not be how investors evaluate its performance.

I believe this was one of reasons that the stock shed more than 8% following the company's first-quarter earnings miss, reported in April. Even with the disappointment, it was an otherwise good quarter that went unnoticed.

The Street seems to have forgotten that there weren't many banks that found itself in as big a hole. It seems the Street expected an overnight solution to all of BofA's operational challenges in one quarter.

Investors also overlooked that the bank had to pay $900 million in legal fees, which amounted to as much as 5 cents a share. What's more, amid all of the chatter about the bank missing earnings, there were also concerns about its 2% decline in net interest income. This is even though Bank of America actually outperformed JPMorgan Chase , which posted a decline in the same area of 6%.

Even with the slippage in BofA's net interest income, I didn't believe then there was cause for concern. The fact that the stock has regained its losses since the April report suggests that the Street has come to this same realization. Over the past couple of months, management has been working to stabilize the business.

So far, the results have been positive. Deposits have begun to change course, after posting declines the past couple of quarters. And as investors overreacted to the declines, many also seem to have forgotten that Bank of America still leads both JPMorgan and Wells Fargo in overall deposits.

I'm not discounting that Bank of America still faces plenty of legacy operational issues. But it seems that despite the ample signs of progress, management still isn't getting any credit. The Street also ignored management's shedding some of the bank's low-performing assets and loans as it strives to improve its ability to return value to shareholders.

This is while the bank is in the midst of a significant restructuring plan that includes a 10% headcount reduction, extinguishing debt and so on. The bank also continues to bolster its balance sheet as its Basel 3 Tier 1 common capital ratio continues to improve.

Basel 3 is a global regulatory standard that serves to prevent too-big-to-fail scenarios by enforcing not only bank capital requirements, but also by adding minimum standards on liquidity and leverage. Basel 3 requires banks to hold 4.5% of common equity. This is an area in which CEO Brian Moynihan has taken a personal interest in an effort to help build back trust in the bank.

In that regard, there are signs that the bank is starting to regain both investor and consumer confidence after a long-fought battle toward recovery. There's still plenty of work to be done, but with mortgage originations on the rise as the housing recovery continues, it's safe to say that the worst for Bank of America is over. I would be a buyer here ahead of earnings.

At the time of publication, the author held no position in any stock mentioned.

This article was written by an independent contributor, separate from TheStreet's regular news coverage.

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