Bear of the Day: Bank of America (BAC) - Bear of the Day

By Zacks | May 08, 2014 AAA

Here we are a world away from the economic hardships and panic of the Great Recession. Since then, we’ve had a market rally to all-time highs and suddenly it feels like we are back on track. Now the last few days have given some cause for concern amongst investors. The NASDAQ 100 has led the way down and the Russell 2000 is seeing its share of red arrows as well. But you could view this year so far as a decent year for most stocks.

Falling to the bottom 28% of our Zacks Industry Rank is the Major Regional Banks. These institutions are struggling to find ways to increase profits without taking on additional risk that hurt them so much during the downturn. These banks have been hampered by tightened credit, a depressed housing market, and low spreads on deposits. Near the bottom of this industry in terms of our Zacks Rank is our Bear of the Day, Bank of America (BAC).

This Zacks Rank #5 (Strong Sell) stock has seen a whopping 12 analysts bring down earnings estimates for the current quarter and next year over the last 30 days. This has pushed the consensus down from $1.35 to 96 cents for this year. Percentage-wise you’re looking at a 28% plus down side revision. Not the kind of numbers you want to see from your stock. Couple that with the fact that BAC is only paying a 4 cent dividend giving you a paltry yield of 0.27% and this isn’t the most attractive stock in the space.

Estimates had been stabilizing for BAC post-recession prior to this year. A quick look at the Price and Consensus chart spells out the story nicely. Estimates came crashing down in 2010 as the bank struggled with bad loans on the books. As revisions evened out the stock started to regain some of its value. This year however has been a bad one thus far and you can see the negative impact of the revisions on the stock.

That’s not where the bad news ends. The technical picture is pretty sad right now as well. After reaching $18 in mid –March, BAC has steadily sold off and now trades below $15. After the high was hit, BAC pushed below the 25 day moving average offset by 5 days in early April. Since then the stock has been beat down.

 Not only has BAC failed to find any support on the way down, but it has gapped as well. The gap on April 28th saw the stock lose a buck on the day. Today’s action below $15 only confirms the intermediate term downtrend. It looks like the next level of support is down in the $13.50 range.

The only saving grace right now is the stochastics have been oversold since early April so there may be a bit of a reprieve coming soon. I wouldn’t look at that a change in the trend, but rather a chance to sell into strength.

Investors looking for other major regional bank stocks can look to Wells Fargo (WFC) or Suntrust Bank (STI). Both Wells and Suntrust carry a Zacks Rank #2 (Buy).

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