Is Bank of America Stock Worth Owning Ahead of Q4 Earnings?

Core Viewpoint - Bank of America (BAC) is expected to report strong fourth-quarter and full-year 2025 results, with revenue growth driven by trading and net interest income (NII) despite some challenges from interest rate cuts [1][2]. Financial Performance - BAC's nine-month performance was solid, with impressive trading numbers and growth in NII, leading to a projected revenue of $27.32 billion for Q4, indicating a 7.8% year-over-year growth [2][10]. - The consensus estimate for earnings has been revised 1% lower to 95 cents, reflecting a 15.9% increase from the prior-year quarter, supported by higher NII and a solid capital markets business [3]. Estimate Revision Trend - Current earnings estimates for Q4 2025 are 0.95, down from 0.96 a week ago, while estimates for the next quarter and the current year remain stable [5]. - BAC has a history of earnings surprises, having outperformed the Zacks Consensus Estimate in the last four quarters with an average surprise of 8.47% [5][6]. Factors Impacting Q4 Performance - NII is expected to be between $15.6 billion and $15.7 billion for Q4, suggesting an 8% year-over-year growth, despite recent Federal Reserve interest rate cuts [9]. - Loan demand has been robust, particularly in commercial, industrial, real estate, and consumer loans, which is expected to support BAC's performance [8]. Investment Banking (IB) and Trading Income - IB fees are projected to be "flattish to a little bit down" from last year, with a consensus estimate of $1.62 billion, indicating a 2% decline [13]. - Trading revenues are expected to rise by 23.3% year-over-year, driven by market volatility and increased client activity, with total sales and trading revenues estimated at $5.06 billion [15]. Expenses and Asset Quality - Non-interest expenses are anticipated to be around $17.3 billion for Q4, reflecting a 3.6% year-over-year increase due to expansion and digitization efforts [16]. - The provision for credit losses is estimated at $1.33 billion, with non-performing loans expected to increase by 6.6% year-over-year [17][18]. Stock Performance and Valuation - BAC shares gained 6.6% in Q4, outperforming the S&P 500, but lagging behind JPMorgan and Citigroup [22]. - The stock is trading at a price-to-tangible book (P/TB) ratio of 2.01X, below the industry average of 3.18X, indicating it is currently undervalued [25]. Strategic Outlook - The company is focusing on aggressive branch expansion and technology investments to drive future NII growth, with an expected growth rate of 6-7% for 2026 [29][30]. - Management's commentary on NII guidance and IB outlook during the upcoming earnings call will be crucial for investors [31].