The financial sector has gotten off to a strong start in 2018 thanks to a concoction of rising interest rates, declining unemployment, a robust housing market and a global economy that’s set up for another strong year. Many stocks within this group have traded well recently, and with the fourth-quarter earnings season kicking off, there’s one in particular I want to take a closer look at.
Bank of America Corp (NYSE:BAC) had a great 2017, moving up almost uninterrupted throughout the year to rake in gains of 33.5% from start to finish. This year has started off just as strong with a near 4% climb in the first two weeks of trading, which is thanks in part to a big rise in the 10-year Treasury yield.
But in order for this rally to continue, the company needs to post solid fourth-quarter earnings when it reports before the open on Wednesday.
Analysts on the Street are currently looking for earnings of 44 cents a share, about 4 cents more than last year.
This number won’t include the $3 billion one-time charge that BAC will take as a result of the new tax reform — which is already baked into the shares. And over the long term, the positive effects of the reform should outweigh the charge.
Looking ahead to next year, the 29 analysts who cover Bank of America expect the company to earn $2.35 a share, representing a 30.5% increase over 2017. Based on this estimate, the stock is currently trading with a price-to-earnings ratio of 13, which is well below that of the overall market.
And if interest rates continue to rise, it could boost the 2018 earnings consensus even higher.
Technically speaking, BAC has a great chart right now. The shares climbed to new levels since their 2008 highs this week, and all signs point toward higher prices for both them and the financial sector as a whole.
While I am wary of buying any stock ahead of its earnings report, this is one situation where I may make an exception. As long as you have a long-term outlook here, buying BAC ahead of earnings could be a good move.
Matthew McCall is the founder and president of Penn Financial Group, an investment advisory firm, as well as the editor of FUTR Stocks and the ETF Bulletin. Matt just launched two new investment advisories focused around the “next” generation investing theme. His trademark three-prong investing approach targets the mega-trends old Wall Street is missing out on. Click here for more information on the “NexGen” Experience.
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