After JPMorgan and Citi Beat Earnings, Should You Buy Bank of America?

With JPMorgan Chase (JPM ) and Citigroup (C ) reporting better-than-expected earnings results this morning, fellow commercial and investment banking giant Bank of America (BAC ) will hope to continue the positive trend with its own earnings announcement on Monday. Earnings season is just heating up, and these financial bellwethers should give investors a great read on the economy.

The big story for both JPMorgan and Citi was increased revenue from equity trading, with the firms reporting revenue growth of 26% and 38%, respectively, in this segment. Overall, JPM notched total revenue growth of 12% and earnings growth of 44%, while Citi’s total revenue and earnings improved 3% and 24.4%, respectively.

So what should Bank of America investors expect? Let’s take a closer look!

Latest Outlook and Valuation

Based on our latest Zacks Consensus Estimates, we expect Bank of America to post earnings of $0.59 per share and total revenue of $22.91 billion. These results would represent year-over-year growth of 43.9% and 3.0%, respectively.

Heading into its report date, BAC is trading with a Forward P/E of 11.9, which is basically in line with the industry’s average of 12.0. Within the past year, the stock has traded as high as 16.8x forward 12-month earnings and as low as 11.3x. Its median earnings multiple over that time is 12.5. Investors might conclude that BAC shares are currently cheap compared to their valuation recently.

Earnings ESP Whispers

Investors will also want to anticipate the likelihood that Bank of America surprises investors with better-than-anticipated earnings results. For this, we turn to our Earnings ESP figure.

Zacks Earnings ESP (Expected Surprise Prediction) looks to find earnings surprises by focusing on the most recent analyst estimates. This is done because, generally speaking, when an analyst posts an estimate right before an earnings release, it means that they have fresh information which could potentially be more accurate than what analysts thought about a company two or three months ago.

A positive Earnings ESP paired with a Zacks Rank #3 (Hold) or better ranking helps us feel confident about the potential for an earnings beat. In fact, our 10-year backtest has revealed that this methodology has accurately produced a positive surprise 70% of the time.

Bank of America is currently holding a Zacks Rank #3 (Hold) and an Earnings ESP of -0.4%. This is because the company’s Most Accurate Estimate for earnings sits at $0.58, meaning that the most recent analyst estimates have been lower than the consensus. In other words, our model is not conclusively calling for a beat.

Surprise History

Another important thing to consider ahead of Bank of America’s report is the company’s history of earnings surprises and the effect that these surprises have had on share prices. The company has met or surpassed earnings estimates in each of the trailing seven quarters, and the stock has responded well to these positive surprises.

We judge the price effect of these earnings beats by comparing the closing price of the stock two days before the report and two days after the report. Over the course of BAC’s recent streak, the stock has turned positive during this window six times.

Want more market analysis from this author? Make sure to follow @Ryan_McQueeney on Twitter!

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