(Note: The author of this fundamental analysis is a financial writer and portfolio manager.)

Bank of America Corp.'s (BAC) stock is about 13% off its 2018 highs, but things may get worse for a number of key reasons. The bank's stock is still expensive as it trades near its peak price to tangible book value, a key measure used to value bank stocks. Worse, analysts have been slashing their earnings estimates for the coming third quarter results on October 15, and they see full-year earnings growing slower than the previous forecast. (See: Bank of America May Drop 8% to Test 2018 Low.) 

BAC Chart

BAC data by YCharts

Reducing Estimates

Analysts are now estimating that the company will reveal that earnings for the third quarter increased by 29% to $0.62 per share. That is down 6 percentage points from a prior forecast in July. Revenue estimates have dropped by 2 percentage points and are now expected to grow by 2.5% to $22.6 billion. 

BAC EPS Estimates for Current Quarter Chart

Since April, earnings estimates for 2018 have fallen by about 2.5 percentage points and are now seen rising by about 38% to $2.52 per share. Revenue estimates have dropped about 2 percentage points and are now forecast to increase by about 38% to $91.4 billion. 

Another big problem is the significant slowdown in earnings growth analysts expect to occur in 2019 and 2020. For example, by the year 2020, analysts forecast earnings to grow by 13%. 

Not Cheap

Another big potential problem for the stock is its current valuation trading at a price to tangible book value of about 1.7, and that is down from a high of almost 1.9 in March. But even at its current valuation, one would need to go back to the year 2010 to find a higher ratio.

BAC Price to Tangible Book Value Chart

Price Targets May Be Too High

Despite the lofty valuation and forecast for slowing growth, analysts' price targets see the stock going higher to an average of about $34.60. That is about 19% higher than the current price, and it may be too optimistic. It makes the third-quarter results even more critical. Should those results come in as forecasts expect or worse, it may cause analysts to cut their price targets. (See: Bank of America Stock Could Enter Steep Decline.)

For the stock to reverse course, the bank will not only need to deliver better than expected results but give investors a reason to believe future quarters will be even stronger.

Michael Kramer is the Founder of Mott Capital Management LLC, a registered investment adviser, and the manager of the company's actively managed, long-only Thematic Growth Portfolio. Kramer typically buys and holds stocks for a duration of three to five years. Click here for Kramer's bio and his portfolio's holdingsInformation presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Upon request, the advisor will provide a list of all recommendations made during the past twelve months. Past performance is not indicative of future performance.