Bank of America (BAC -0.47%) shareholders have plenty to celebrate heading into 2025. The combination of a resilient economy, climbing financial asset prices, and optimism toward lending conditions have propelled the stock to a fantastic 31% return during the past year.
The megabank’s upcoming fourth-quarter earnings report on Jan. 16 will be an opportunity for management to reaffirm these positive trends and set the tone for the stock in the new year.
Can the rally keep going, and should you buy Bank of America shares before this important company update? Here’s what investors need to know.
Organic growth supports a positive outlook
The financial services sector is more competitive than ever, considering the rise of financial technology (fintech) players attempting to disrupt the traditional banking model. Nevertheless, Bank of America is proving it remains highly relevant and capable of navigating an ever-evolving industry landscape.
Through the first nine months of 2024, multiple operating metrics for the bank, including higher average loans, climbing deposits, and even a record level of customer investment asset balances, highlight the bank’s successful strategic execution. Bank of America’s ability to generate organic growth, leveraging the core strengths of its platform into market share gains, has been a major theme this year.
The bank’s consumer banking franchise stands as a particularly bright spot, boasting 23 consecutive quarters of net new checking account growth. Meanwhile, its wealth management division has capitalized on robust demand, while the global markets segment has achieved record equities sales and trading volumes. Adding to this momentum, Bank of America successfully rode the wave of recovering merger and acquisition activity, with higher advisory fees bolstering its global banking revenue.
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What to expect from Bank of America’s Q4 earnings
All eyes are now on the upcoming fourth-quarter earnings report (for the period ending Dec. 31) to see whether these positive trends maintain their trajectory through year-end.
Wall Street expects Bank of America to deliver solid fourth-quarter results, with revenue projected to rise 6.8% and adjusted earnings per share reaching $0.79, up from $0.70 last year. These improvements stem from both recovering net interest income and continued organic growth. The Federal Reserve’s recent interest rate cuts could provide an additional tailwind for loan demand, particularly encouraging given the bank’s currently stable delinquency and charge-off rates.
A key focus this quarter will be Bank of America’s provision for credit losses, which stood at $1.3 billion in the third quarter. Any significant increase would signal concerns about borrower health across consumer loans, mortgages, credit cards, and corporate lending. On the other hand, a modest adjustment or even a move by Bank of America to release some of its reserves with a lower provision for credit would indicate management’s confidence in credit conditions.
Room for more upside in 2025
I’m bullish on Bank of America as an industry leader well-positioned to consolidate its market share. One sign that suggests Bank of America stock has further upside is its price-to-book (P/B) ratio, currently at 1.3. This valuation multiple measures the stock’s total market capitalization relative to the value of its balance sheet assets. Notably, Bank of America stock today is trading below its peak P/B ratio of above 1.6 in 2022 when the stock price was at a similar level.
The bank’s ability to benefit from a new credit growth cycle and steady economic conditions could be a tailwind for the stock to reclaim a more premium valuation. Efforts to improve operating and financial efficiency with a runway for higher return on equity can keep shares climbing going forward.
BAC Price to Book Value data by YCharts.
So, while a repeat of Bank of America stock’s spectacular 2024 outperformance will be difficult to achieve, investors confident in the bank’s long-term outlook should stay the course. A strong fourth-quarter earnings report, coupled with positive guidance, may be the catalyst the market is waiting for ahead of the next stage in the stock price rally.
As long as economic growth remains steady, the bank should continue delivering positive shareholder returns.
Bank of America is an advertising partner of Motley Fool Money. Dan Victor has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Bank of America. The Motley Fool has a disclosure policy.
