Is Bank Of America Stock Undervalued?
Bank of America’s stock (NYSE: BAC) has gained 4% YTD as compared to the 3% rise in the S&P500 index over the same period. Further, at its current price of $34 per share, the stock is trading 16% below its fair value of $41 – Trefis’ estimate for Bank of America’s valuation. The bank surpassed the consensus estimates of revenues and earnings in the fourth quarter, with net revenues increasing by 11% y-o-y to $24.5 billion. It was mainly driven by a 29% growth in the net interest income (NII), partially offset by an 8% drop in the noninterest revenues. While the NII benefited from improvement in interest rates and loan growth, the noninterest income suffered due to a drop in investment banking fees, asset management revenues, and service charges, overshadowing the growth in sales and trading business. On the cost front, the provisions for credit losses witnessed an unfavorable increase from -$489 million to $1.1 billion. It resulted in a net income of $7.1 billion – up 2% y-o-y.
The bank’s top line grew 7% y-o-y to $94.95 billion in FY 2022. It was primarily because of a 22% rise in the NII, partially offset by an 8% decline in the noninterest income. In terms of business segments, consumer banking revenues increased 14% y-o-y, followed by a 5% growth in wealth management, and a 6% rise in global banking segments. However, the global markets division reported a 6% drop in revenues. Despite positive growth in the top line, the adjusted net income decreased 15% y-o-y to $26 billion. It was primarily due to higher provisions for credit losses.
Moving forward, Bank of America revenues are forecast to touch $101.5 billion in FY2023. Additionally, BAC’s adjusted net income is likely to remain around $27.1 billion. This coupled with an annual EPS of $3.41 and a P/E multiple of 12x will lead to a valuation of $41.
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| Returns | Mar 2023 MTD [1] |
2023 YTD [1] |
2017-23 Total [2] |
| BAC Return | 0% | 4% | 55% |
| S&P 500 Return | 0% | 3% | 77% |
| Trefis Multi-Strategy Portfolio | 0% | 7% | 238% |
[1] Month-to-date and year-to-date as of 3/1/2023
[2] Cumulative total returns since the end of 2016
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