PARAGUAY – 2024/08/19: In this photo illustration, the Bank of America logo is displayed on a … [+] smartphone screen. (Photo Illustration by Jaque Silva/SOPA Images/LightRocket via Getty Images)
SOPA Images/LightRocket via Getty Images
Bank of America’s stock (NYSE: BAC) has gained 19% YTD, as compared to the 18% rise in the S&P500 index over the same period. Notably, Bank of America’s peer Wells Fargo (NYSE: WFC) is up 14% YTD. Overall, at its current price of $40 per share, BAC is trading 12% below its fair value of $45 – Trefis’ estimate for Bank of America’s valuation.
Amid the current financial backdrop, BAC stock has shown strong gains of 35% from levels of $30 in early January 2021 to around $40 now, vs. an increase of about 50% for the S&P 500 over this roughly 3-year period. However, the increase in BAC stock has been far from consistent. Returns for the stock were 50% in 2021, -24% in 2022, and 5% in 2023. In comparison, returns for the S&P 500 have been 27% in 2021, -19% in 2022, and 24% in 2023 – indicating that BAC underperformed the S&P in 2022 and 2023. In fact, consistently beating the S&P 500 – in good times and bad – has been difficult over recent years for individual stocks; for heavyweights in the Financials sector including JPM, V, and MA, and even for the megacap stars GOOG, TSLA, and MSFT. In contrast, the Trefis High Quality Portfolio, with a collection of 30 stocks, has outperformed the S&P 500 each year over the same period. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride as evident in HQ Portfolio performance metrics. Given the current uncertain macroeconomic environment with high oil prices and elevated interest rates, could BAC face a similar situation as it did in 2022 and 2023 and underperform the S&P over the next 12 months – or will it see a strong jump?
The bank outperformed the street expectations in the second quarter of FY 2024, with total revenues of $25.4 billion – up 1% y-o-y. It was primarily driven by a 6% growth in global wealth & investment management and a 12% rise in global markets (sales & trading) units, almost offset by a 6% decrease in global banking and a 3% drop in the consumer banking division. Notably, the net interest income declined by 3% y-o-y to $13.7 billion in the quarter due to higher deposit costs and modest loan growth. In terms of expenses, provisions for credit losses witnessed an unfavorable increase of 34% to $1.5 billion, resulting in a 7% decline in the adjusted net income to $6.6 billion.
The bank’s top line marginally decreased to $51.2 billion in the first half of FY 2024. It was driven by a 3% drop in the net interest income, almost offset by a similar rise in the noninterest revenues. On the cost front, provision for credit losses jumped 38% to $2.8 billion. Further, total noninterest expenses increased 4% y-o-y over the same period. Altogether, it led to a 14% y-o-y decline in the adjusted net income to $12.7 billion.
Moving forward, we expect the net interest income to see some improvement in the Q3 results. Overall, the Bank of America revenues are estimated to touch $102.2 billion in FY2024. Additionally, BAC’s adjusted net income margin is likely to remain around the same level as last year, leading to an adjusted net income of $25.7 billion. This coupled with an annual GAAP EPS of $3.27 and a P/E multiple of just below 14x will lead to a valuation of $45.
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Publish date : 2024-08-20 23:00:00
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