by SignalFactory · January 14, 2020 | 08:51:39 UTC
Bank Of America May Surge Following Quarterly
The bar for Bank of America
appears to be low going into fourth-quarter results.
Options traders are betting
that the stock will rally.
The company’s history of
delivering better than expected results set up an opportunity for a beat and
Bank of America (BAC) will report results on Wednesday morning, and some
traders are betting that the stock will surge by as much as 7% by the middle of
September. Perhaps it will be the quarterly results that give the stock the
boost it needs to send the shares on their way higher.
The fourth quarter isn’t expected to be stellar for BofA. Earnings are
estimated to have declined by almost 1.5% to $0.69 per share versus last year.
Meanwhile, revenue is forecasted to have dropped by nearly 2.6% to $22.3
Bar Is Set Low
The bar has been set low for Bank of America going into these results.
The company has been able to beat analysts’ earnings estimates in each of the
last eight quarters.
Meanwhile, the company has been able to meet or exceed revenue estimates
in six of the last eight quarters.
With a low bar and the company’s history for topping estimates, it likely sets up a good opportunity for the company to do the same this quarter.
Betting On a Beat and Raise Quarter?
It could be one reason why some traders are betting the stock rises
above $37 by September 18. Changes in open interest show a spread trade took
place on January 10. According to data from Trade Alert, the September $37
calls saw their open interest levels rise by over 10,000 contracts, bringing
the total number of open contracts to around 21,900. Additionally, the $37
puts, saw their open interest increase by approximately 10,000 open contracts,
bringing the total number of open contracts to about 12,900.
The data shows that the puts traded on the BID and that the calls traded
on the ASK. It means that a trader sold the puts and bought the calls, which
created a spread transaction. It is a bet that Bank of America’s stock rises
above $37 by the expiration date in September.
Valuation Is Compelling
Despite the big run-up in the stock over the past year, the valuation is
still compelling, trading at roughly 10.7 times 2021 earnings estimates of
$3.25. Which makes the stock cheaper than peers JPMorgan (JPM), and in-line
with Wells Fargo (WFC).
It seems unlikely that Bank of America would trade with a multiple on
par with JPMorgan. However, it does seem reasonable that good quarterly results
could help the stock’s earnings multiple increase to its prior high of around
11.7. Should that happen, the stock would be worth roughly $38.
All information on this website is of a general nature. The information is not adapted to conditions that are specific to your person or entity. The information provided can not be considered as personal, professional or legal advice or investment advice to the user.
Signal Factory is not represented as a registered investment consultant or brokerage dealer nor offers to buy or sell any of the financial instruments mentioned in the service offered.
While Signal Factory believes that the content provided is accurate, there are no explicit or implied warranties of accuracy. The information provided is believed to be reliable; Signal Factory does not guarantee the accuracy or completeness of the information provided. Third parties refer to Signal Factory to provide technology and information if a third party fails, and then there is a risk that the information may be delayed or not delivered at all.
All information and comments contained on this website, including but not limited to, opinions, analyzes, news, prices, research, and general, do not constitute investment advice or an invitation to buy or sell any type of instrument. Signal Factory assumes no responsibility for any loss or damage that may result, directly or indirectly, from the use or dependence on such information.
All information contained on this web site is a personal opinion or belief of the author. None of these data is a recommendation or financial advice in any sense, also within the meaning of any commercial act or law. Writers, publishers and affiliates of Signal Factory are not responsible for your trading in any way.
The information and opinions contained in the site are provided for information only and for educational reasons, should never be considered as direct or indirect advice to open a trading account and / or invest money in Forex trading with any Forex company . Signal Factory assumes no responsibility for any decisions taken by the user to create a merchant account with any of the brokers listed on this website. Anyone who decides to set up a merchant account or use the services, free of charge or paid, to any of the Forex companies mentioned on this website, bears full responsibility for their actions.
Any institution that offers a service and is listed on this website, including forex brokers, financial companies and other institutions, is present only for informational purposes. All ratings, ratings, banners, reviews, or other information found for any of the above-mentioned institutions are provided in a strictly objective manner and according to the best possible reflection of the materials on the official website of the company.
Forex trading is potentially high risk and may not be suitable for all investors. The high level of leverage can work both for and against merchants. Before each Forex investment, you should carefully consider your goals, past experience and risk level. The opinions and data contained on this site should not be considered as suggestions or advice for the sale or purchase of currency or other instruments. Past results do not show or guarantee future results.
Neither Signal Factory nor its affiliates ensure the accuracy of the content provided on this Site. You explicitly agree that viewing, visiting or using this website is at your own risk.