Today’s news:
- Bank of America (BAC) to report earnings tomorrow morning, July 18.
- Buy Bank of America (BAC) and Dollar Tree (DLTR)
Bank of America (BAC – 2.0%) will report second-quarter results on July 18 in the morning.
In mid-June, Morgan Stanley named BAC as the bank that’s best-positioned to capitalize on rising interest rates, which boosts net interest margin (NIM). Considering that last week’s upside earnings surprises among large-cap banks were led by higher-than-expected NIM, this also bodes well for BAC’s quarterly results.
Consensus full-year EPS estimates have held extremely steady for the past three weeks at $1.76 and $2.15 (2017 and 2018). With an expected 2018 EPS growth rate of 22.1% and a P/E of 11.6, BAC is an extremely attractive and undervalued large-cap bank stock. Good news from last week’s large-cap bank earnings outperformance, and from the Fed’s approval of BAC’s capital plan, has not yet been reflected in the share price.
As a result of the Federals Reserve’s recent approval of Bank of America’s 2017 capital plan, the company immediately announced a $12.9 billion increase in its share repurchase plan. In addition, the quarterly dividend will increase from $0.75 to $0.12 quarterly, with a new yield of 1.98%. That increase won’t be reflected on brokerage firm websites or NASDAQ.com until the official dividend declaration takes place near August 1.
BAC is an undervalued large-cap bank with strong earnings growth. BAC has short-term upside price resistance at 25.5, which it could easily surpass this year, possibly even this month. Strong Buy.
Dollar Tree (DLTR) was featured in the July issue of Cabot Undervalued Stocks Advisor. DLTR is experiencing the strongest current-year earnings growth among discount retail and food companies. In addition, current-year consensus earnings estimates for DLTR increased in each of the last three weeks.
Food retailers’ share prices fell in the wake of the recent Amazon.com-Whole Foods merger announcement. The worst seems to be over for that sudden price action, with several retail food stocks appearing immediately ready to rise, including DLTR. The upturn was boosted by Target’s (TGT) bullish third-quarter remarks last week. I expect DLTR to quickly rebound to 75, then rise into the 80s later this year. Buy.