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Bank of America

(BAC) - Get Bank of America Corp Report

's cost cuts and low valuation are the chief reasons Raymond James analyst Anthony Polini is leaving a "strong buy" on the stock going into third-quarter earnings.

Polini expects the bank to earn 22 cents per share vs. a consensus of 20 cents, with a range of between 14 and 27 cents.

Bank of America says it has eliminated 31,000 full-time jobs, or just under 11% of its workforce, between the second quarter of 2011 and the second quarter of 2013.

"Core expense should decrease on continued benefits from its costs savings program. Credit quality is expected to improve again in 3Q13, and we estimate NCOs and nonaccrual loans to decline 10% and 3% LQ, respectively. We expect the margin to hold up rather well in 3Q13 at 2.44%, equal to the 2Q13 level," Polini writes.

Bank of America was spending $3 billion per quarter on what it calls "legacy assets and servicing" at the end of 2012. That figure, which does not include litigation, relates to addressing problem mortgages underwritten during the subprime mortgage boom. The bank expects to bring those costs down to $2 billion per quarter by the fourth quarter of this year, according to a presentation earlier this month by CFO Bruce Thompson.

"We'll reduce that another $1 billion a quarter by the end of 2014 and look to have that below $0.5 billion a quarter by the end of 2015," Thompson said at a conference hosed by Barclays.

Further cost reductions will come from a cost-savings initiative know as "Project New BAC," which the bank describes in regulatory filings as "a two-phase, enterprise-wide initiative to simplify and streamline workflows and processes, align businesses and costs more closely with our overall strategic plan and operating principles, and increase revenues. Phase 1 focuses on the consumer businesses, including Deposits, Card Services and Consumer Real Estate Services, and related support, technology and operations functions. Phase 2 focuses on Global Banking, Global Markets and Global Wealth & Investment Management, and related support, technology and operations functions not subject to evaluation in Phase 1. All aspects of Phase 1 of Project New BAC are currently expected to be implemented by the end of 2013, with the full cost savings impact expected to be realized in 2014, while Phase 2 is expected to be fully implemented by mid-2015."

Despite the expected positives tied to cost savings, Polini sees Bank of America's "core" revenue declining 3% vs. the second quarter, due in part to a

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slowdown in refinancing activity

as interest rates have risen. Bank of America has reportedly cut more than 2,000 jobs in its mortgage division as a result of the slowdown. Other banks, including

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Wells Fargo

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, have made similar cuts. Bank of America has not confirmed the size of its cuts.

Bank of America is scheduled to report earnings before the market opens Wed., Oct. 16.


Written by Dan Freed in New York


Follow @dan_freed

Disclosure: TheStreet's editorial policy prohibits staff editors, reporters and analysts from holding positions in any individual stocks.