Bank of America Stock Is Trading Below Its Intrinsic Value
Bank of America’s stock (NYSE: BAC) is down 11% YTD as compared to the 11% rise in the S&P500 index over the same period. Further, at its current price of $29 per share, it is trading 20% below its fair value of $37 – Trefis’ estimate for Bank of America’s valuation. The bank outperformed the consensus estimate in the first quarter of 2023, with total revenues of $26.26 billion – up 13% y-o-y. Consumer banking revenues increased by 21% due to a 29% rise in net interest income (NII). Notably, the NII benefited from loan growth and a higher net interest margin. Further, the global transaction services grew 47% y-o-y, followed by a 6% improvement in sales & trading revenues. That said, the global wealth & investment management revenues decreased by 3%, primarily driven by the impacts of lower market valuations and declines in Assets under Management (AuM). Overall, the adjusted net income increased 16% y-o-y to $7.66 billion. This was partly due to higher revenues and partly due to lower expenses as a % of revenues.
The bank’s top line grew 7% y-o-y to $94.95 billion in FY 2022 because of a 22% increase in the net interest income. However, it was somewhat offset by an 8% drop in the noninterest income. The noninterest income mainly suffered due to lower sales & trading and investment banking revenues. On the cost front, the provisions for credit losses witnessed an unfavorable build-up from -$4.6 billion to $2.5 billion. This led to a 15% y-o-y drop in the adjusted net income to $26 billion.
Moving forward, we expect the net interest income to drive growth for the bank in Q2. Altogether, the Bank of America revenues are forecast to touch $100.56 billion in FY2023. Additionally, BAC’s adjusted net income margin is likely to see a slight decrease in the year, leading to an adjusted net income of $27.19 billion. This coupled with an annual GAAP EPS of $3.44 and a P/E multiple of just below 11x will lead to a valuation of $37.
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| Returns | Jun 2023 MTD [1] |
2023 YTD [1] |
2017-23 Total [2] |
| BAC Return | 6% | -11% | 33% |
| S&P 500 Return | 2% | 11% | 91% |
| Trefis Multi-Strategy Portfolio | 4% | 14% | 259% |
[1] Month-to-date and year-to-date as of 6/8/2023
[2] Cumulative total returns since the end of 2016
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