Should one consider purchasing Bank of America's shares prior to January 16th?
Bank of America (BAC) shareholders are in for a celebratory start to 2025, with a resilient economy, soaring financial asset prices, and optimism in lending conditions propelling the stock to a remarkable 31% return within the past year. The fourth-quarter earnings report, set for release on January 16, offers management a chance to reinforce these favorable trends and establish a favorable tone for the stock in the upcoming year.
The question on everyone's minds is whether the rally will persist, and if it's worth purchasing Bank of America shares before this critical company update. Let's delve into the crucial factors for investors to consider.
Organic growth reinforces a promising forecast
In a highly competitive financial services sector, with the rise of fintech players aiming to disrupt the conventional banking system, Bank of America demonstrates its relevance and capability to navigate an ever-evolving industry backdrop.
From the first nine months of 2024, various operating metrics for the bank, such as growing average loans, climbing deposits, and record-breaking customer investment asset balances, illustrate the bank's successful strategic execution. Bank of America's knack for organic growth, leveraging the core strengths of its platform to secure market share, has been a significant theme in 2024.
The bank's consumer banking division shines as a major highlight, with 23 consecutive quarters of net new checking account growth. Meanwhile, its wealth management division has capitalized on sustained demand, while the global markets segment achieved record equities sales and trading volumes. Bank of America also profited from recovering merger and acquisition activity, boosting its global banking revenue through higher advisory fees.
Expectations ahead of Bank of America's Q4 earnings report
Our attention now turns to the forthcoming fourth-quarter earnings report (covering the period ending December 31) to see whether these positive trends persist through year-end.
Wall Street anticipates a robust fourth-quarter performance from Bank of America, with revenue projected to increase by 6.8% and adjusted earnings per share reaching $0.79, surpassing the $0.70 mark from the previous year. These improvements stem from both a rebound in net interest income and continued organic growth. The Federal Reserve's recent interest rate cuts may offer an additional boost for loan demand, with the bank's currently stable delinquency and charge-off rates providing a favorable backdrop.
A significant focus this quarter is Bank of America's provision for credit losses, which stood at $1.3 billion in the third quarter. Any considerable uptick would raise concerns about borrower health across consumer loans, mortgages, credit cards, and corporate lending. Conversely, a moderated adjustment or even Bank of America releasing some of its reserves with a lower provision for credit would indicate management's confidence in credit conditions.
Additional upside potential in 2025
I remain optimistic about Bank of America as an influential industry leader with the capability to expand its market share. One indicator suggesting Bank of America stock has further growth potential is its price-to-book (P/B) ratio, currently at 1.3. This valuation multiple measures the stock's total market capitalization relative to the value of its balance sheet assets. Strikingly, Bank of America stock today trades below its peak P/B ratio of above 1.6 in 2022 when the stock price was at a similar level.
The bank's potential to benefit from a new credit growth cycle and stable economic conditions might serve as a propelling force for the stock to reclaim its premium valuation. Endeavors to enhance operating and financial efficiency and the prospect of higher return on equity should sustain shared growth in the foreseeable future.
Although a repeat of Bank of America stock's extraordinary 2024 performance may be challenging, investors who believe in the bank's long-term outlook should remain committed. A strong fourth-quarter earnings report, accompanied by positive guidance, may act as the catalyst that the market is awaiting to launch the next phase in the stock price rally.
As long as the economy maintains steady growth, the bank should continue delivering favorable returns for its shareholders.
- Given the bank's impressive organic growth and market share expansion in 2024, some investors might consider additional investments in Bank of America, viewing its current price-to-book ratio as an opportunity for potential future gains.
- With the expectation of a robust Q4 performance, Bank of America shareholders may view investing their money in the company as a prudent move, especially if the earnings report reinforces the bank's positive trends and provides optimistic guidance for 2025.
