The prospect of improved banking regulations under a Donald Trump administration, combined with rising interest rates, has made shares of Bank of America Corporation (BAC) great again. But is the company fully recovered from the credit crisis?
Bank of America stock closed Friday at $22.68, gaining 2.68% from the prior week’s close of $22.10. The shares are now up 2.44% in 2017, besting the 1.7% year-to-date rise in the S&P 500 (SPX) index. As it stands, when factoring in its 52-week and eight-year high of $23.39, Bank of America has gained around 41% since the Nov. 8 presidential election. But can the bank maintain this monumental run? (See also: Trump's Bonus: Banks See Surging Profits.)
The stock has traded in a narrow range since reaching $23.39 on Dec. 15. Based on Friday's closing price, the shares have fallen around 3% since reaching their Dec. 15 high. The resistance shown in the share price is due to recent concerns about valuation. The bank's stock gains have invited tons of short sellers, who believe the stock has risen too far, too fast. (See also: Bank of America's Short Interest Rises 23%.)
As of the most recent settlement date, Bank of America stock had 138.7 million shares sold short. That translates to a rise of almost 23% over the past month. The extent to which the bank’s earnings growth can sustain its recovery has been a major topic for analysts. To that end, CEO Brian Moynihan, who has done a remarkable job in the bank’s turnaround, has stressed the importance of cost controls to boost the bank's earnings in 2017.
The Charlotte, N.C.-based bank will report fourth quarter fiscal 2016 earnings results next week. Wall Street expects earnings per share of 38 cents on revenue of $21 billion, translating to year-over-year growth of 40% and 7%, respectively. With EPS poised to grow at almost six times the rate of revenue, Bank of America is on the right track. This means, despite the rigor by short sellers, the longs could be in control of this stock for the foreseeable future. (See also: Why Bank Stocks May Keep Printing Money.)