Bank of America (BAC) recently joined Zacks.com’s Most Searched Stocks list. Therefore, you may want to consider some important factors that could impact the stock’s performance in the near future.

Over the past month, shares of the nation’s second-largest bank have returned +2.2% versus the +1.6% change in the Zacks S&P 500 composite. During that time, the Zacks Banks – Major Regional industry, which includes Bank of America, has lost 0.3%. The key question now is: What could be the stock’s future direction?

While press releases or rumors about a substantial change in a company’s business prospects will usually cause the stock price to “trend” and an immediate price change will occur, there are always a number of fundamental facts that ultimately dominate the buy and hold decision-making process.

Revisions to the profit estimate

Rather than focusing on anything else, we at Zacks prioritize evaluating the change in a company’s earnings outlook. This is because we believe that the stock’s fair value is determined by the current value of its future earnings stream.

Our analysis is essentially based on how sell-side analysts covering the stock revise their earnings estimates to take into account the latest business trends. When a company’s earnings estimates go up, the fair value of the stock also goes up. And when the fair value of a stock is higher than its current market price, investors tend to buy the stock, resulting in an increase in its price. For this reason, empirical studies point to a strong correlation between trends in earnings estimate revisions and short-term stock price movements.

Bank of America is expected to report earnings of $0.80 per share for the current quarter, representing a year-over-year change of -11.1%. Over the past 30 days, the Zacks Consensus Estimate has changed -1%.

The consensus earnings estimate of $3.28 for the current fiscal year represents a year-over-year change of -4.1%. This estimate has remained unchanged over the past 30 days.

For the next fiscal year, the consensus earnings estimate of $3.64 represents a +11% change from what Bank of America expected to report a year ago. Over the past month, the estimate has changed by -0.1%.

With an impressive outside-audited track record, our proprietary stock rating tool — the Zacks Rank — is a more conclusive indicator of a stock’s near-term price movement because it effectively harnesses the power of earnings estimate revisions. The magnitude of the recent consensus estimate change, along with three other factors related to earnings estimate revisions, has resulted in a Zacks Rank #3 (Hold) for Bank of America.

The story continues

The chart below shows the development of the company’s expected earnings per share (EPS) for the next 12 months:

12 months earnings per share

Sales growth forecast

While earnings growth is arguably the best indicator of a company’s financial health, nothing happens if a company can’t grow its revenue. After all, it’s nearly impossible for a company to grow its profits over a sustained period of time without growing its revenue. So it’s important to know a company’s potential revenue growth.

For Bank of America, the consensus sales estimate for the current quarter of $25.41 billion represents a year-over-year change of +1%. For the current and next fiscal years, the estimates of $101.93 billion and $105.65 billion represent changes of +3.4% and +3.7%, respectively.

Latest Reported Results and Surprise History

Bank of America reported revenues of $25.38 billion in the latest reported quarter, representing a year-over-year change of +0.7%. EPS of $0.83 for the same period, compared to $0.88 a year ago.

Compared to the Zacks Consensus Estimate of $25.19 billion, reported earnings represented a surprise of +0.76%. The EPS surprise was +5.06%.

The company has surpassed consensus EPS estimates in each of the last four quarters. The company has surpassed consensus revenue estimates three times during that period.

Valuation

No investment decision can be efficient without taking into account the valuation of a share. Whether the current price of a share correctly reflects the intrinsic value of the underlying company and the growth prospects of the company is a key determinant of the future price development.

By comparing the current value of a company’s valuation factors, such as the price-to-earnings (P/E) ratio, price-to-sales (P/S) ratio, and price-to-cash flow (P/CF) ratio, to the company’s historical values, you can determine whether the stock is fairly valued, overvalued, or undervalued. By comparing the company on these parameters to similar companies, you can get a good idea of ​​how reasonable the stock price is.

The Zacks Value Style Score (which evaluates both traditional and unconventional valuation metrics) is part of the Zacks Style Scores system and sorts stocks into five bands, ranging from A to F (A is better than B; B is better than C, and so on). It is useful in determining whether a stock is overvalued, rightly valued or temporarily undervalued.

Bank of America has a C rating on this front, indicating that it is trading on par with its peers. Click here to see the values ​​of some of the valuation metrics that determined this rating.

Conclusion

The facts discussed here and much more information on Zacks.com can help determine whether the market hype surrounding Bank of America is worth paying attention to. However, its Zacks Rank #3 does suggest that it may perform in line with the broader market in the near term.

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