Bank of America Corporation (BAC)

Equity
US
Financial Services

RISK

RETURN

Key risk factors

Strong trading liquidity

Low default risk

Modest price volatility

Key return factors

Solid dividends

Somewhat favourable analyst view

Decent price performance

Corporate actions & dividendsDividend of USD 0.240 with an ex-date of 07 Jun 2024.

Company profileBank of America Corporation, through its subsidiaries, provides banking and financial products and services for individual consumers, small and middle-market businesses, institutional investors, large corporations, and governments worldwide. Its Consumer Banking segment offers traditional and money market savings accounts, certificates of deposit and IRAs, noninterest-and interest-bearing checking accounts, and investment accounts and products; and credit and debit cards, residential mortgages, and home equity loans, as well as direct and indirect loans, such as automotive, recreational vehicle, and consumer personal loans. The company's Global Wealth & Investment Management segment offers investment management, brokerage, banking, and trust and retirement products and services; and wealth management solutions, as well as customized solutions, including specialty asset management services. Its Global Banking segment provides lending products and services, including commercial loans, leases, commitment facilities, trade finance, and commercial real estate and asset-based lending; treasury solutions, such as treasury management, foreign exchange, and short-term investing options and merchant services; working capital management solutions; and debt and equity underwriting and distribution, and merger-related and other advisory services. The company's Global Markets segment offers market-making, financing, securities clearing, settlement, and custody services, as well as risk management products using interest rate, equity, credit, currency and commodity derivatives, foreign exchange, fixed-income, and mortgage-related products. As of December 31, 2021, it served approximately 67 million consumer and small business clients with approximately 4,200 retail financial centers; approximately 16,000 ATMs; and digital banking platforms with approximately 41 million active users. The company was founded in 1784 and is based in Charlotte, North Carolina.

Valuation: Slightly overvalued

Multiple

TTM

NTM

P/E

12.70

12.10

PEG

2.90

P/B

1.10

1.00

P/CR

3.70

P/RIBPT

7.00

P/IBPT

14.50

From a historical and forecasted perspective, the stock is slightly overpriced compared to similar stocks. Specifically, the stock is fairly valued on P/E, Editor's note: P/CR is Price to Core Revenue (CR), similar to P/S for corporates. CR = Net interest income + Net fee & commission income. P/IBPT is Price to Income Before Provisioning and Taxes (IBPT), similar to EV/EBITDA for corporates. IBPT = Core revenue -- Operating expenses + Non-recurring income. P/RIBPT is Price to Recurring Income Before Provisioning and Taxes (RIBPT), similar to P/FCF for corporates. RIBPT = Core revenue -- Operating expenses.

Performance: Decent

Over the last six months, the stock performance has varied, with an increase following a drop. The stock's price trend wasn't definitive when matched against its global counterparts from the same sector and industry (as depicted above). Over the past six months the stock has exceeded the performance of this peer group by 23ppts and its growth accelerated by 0ppts in the past month. This is equally valid for peers from the same country and industry. Given the stock's valuation versus its peers, its total price movement is mildly favourable.

Analyst view: Somewhat favourable

The average target price is 38 and suggests 3% downside potential. Usually, this means a SELL recommendation among investment firms, or a recommendation to decrease one's position in this instrument in the next 12 months. The most optimistic analyst has a target price of 42.8. This translates into 9% upside potential in the best case. On the other hand, the most pessimistic analyst has a target price of 31.6. This is equivalent to 19% downside potential in the worst case.

Profitability: Average

RoE

Bank of America Corporation reported a return on equity (RoE) of 8.4% in the last 12 months, down from 9.1% in FY23. The market consensus projects a RoE of 9.3% in FY24, again behind the peers.

RoA

Another important profitability metric, return on assets (RoA), amounted to 0.8% in the last 12 months, a decrease from 0.8% in FY23. The market analysts predict that RoA will be 0.8% in FY24, again weaker than the peers.

C/I

In the last 12 months, the cost-to-income ratio (C/I) grew to 77.7%, above the peers. The consensus estimate for FY24 for CI is 69.1%, again above of the peers.

Growth: Average

EPS

Core revenue

IBPT

RIBPT

BAC reported revenue of USD 84 177mn in the last 12 months, down 0% from FY23. The institution earned USD 30 331 mn of interest before provisioning and taxes (IBPT) in the trailing 12 months (TTM), a decline of 5% from FY23 At the same time, the dynamics of a more stable income, as measured by recurring income before provisioning and taxes (RIBPT), were drastically different. EPS fell 6% from FY23 to USD 2.92. Market expects EPS to reach USD 3.20 in FY24.The core revenue growth has been constrained in the last several years (negative-to-neutral), while IBPT has been growing slowly in the recent years. This all contributed to continued EPS growth (positive-to-neutral). The RIBPT trend is similar to that of IBPT. We emphasize the highly volatile dynamics of EPS.

Dividends: Solid

Dividend paid

Dividend yield

The company has a track record of regular dividend payments. It has paid dividends in each of the past ten years. Dividend per share (DPS) has grown yearly, and there is an evident trend. In the past 12 months, the dividend yield has been good and slightly above its peers. On average, the company pays dividends quarterly, which may appeal to investors valuing a regular income stream.

Default risk: Low

The solvency (credit quality) of BAC is high. The credit profile rests on (a) a moderate capital position, (b) relatively poor asset quality, (с) a very strong corporate governance framework, (d) below average earnings power and cost efficiency, and (e) its good liquidity profile.

Volatility: Modest

In normal market circumstances, BAC is as volatile as an index. Put differently, without outstanding market volatility or shocking company news, the stock's price will remain relatively stable. The stock's losses on its worst days (less than 1-5% of the time) will range from low to mild. We would also like to highlight the minimal intraday volatility of the instrument. Finally, it may be affected by inherently volatile sector.

Stress-test: Modest

In highly turbulent market conditions, BAC is as volatile as an index. In other words, the stock will fall less than the index in times of extreme market volatility or shocking company news. Standalone, the worst-day losses (less than 1% of the time) will likely be low. At the same time, due to inherently volatile sector, its maximum losses could be limited.

Selling difficulty: Very low

BAC boasts very high trading liquidity. The average private investor can sell his common position in the stock immediately. Liquidity is usually very stable and remains favourable on the days with the lowest activity. The trading volume mostly stays the same even under highly turbulent market conditions.

Country risk: Very low

The institutional, legal, and compliance risks associated with the company's country are minimal. In combination with stringent business standards, shareholder rights are very highly protected.

Other risks: Negligible

No other major risks have been identified.