Bank of America’s stock (NYSE: BAC) has lost 25% YTD as compared to the 16% drop in the S&P500 index over the same period. Further, at its current price of $34 per share, the stock is trading 26% below its fair value of $45 – Trefis’ estimate for Bank of America’s valuation.
The bank outperformed the consensus estimates of revenues and earnings in the second quarter, posting a 6% y-o-y increase in total revenues to $22.7 billion. It was mainly due to a 12% increase in the consumer banking segment, followed by a 7% rise in the wealth management unit. The business primarily benefited from improvement in the net interest income (NII) driven by higher interest rates and loan growth. Notably, the total NII of the firm increased 22% y-o-y to $12.4 billion. On the flip side, the positive effect of higher revenue growth was somewhat offset by a 47% decline in investment banking fees. Further, the provision for credit losses rose from -$1.6 billion to $523 million in the quarter. Overall, the adjusted net income decreased 34% y-o-y to $5.9 billion.
The bank’s top line grew 4% y-o-y to $45.9 billion in the first half of 2022. It was primarily because of higher revenues in consumer banking and wealth management divisions driven by higher NII. Markedly, the NII of BAC improved 18% y-o-y to $24 billion in the first six months. That said, the investment banking fees decreased 41% over the same period, negatively impacting the top line. Altogether, the adjusted net income dropped 24% y-o-y to $12.5 billion. It was mainly due to an unfavorable build-up in the provisions figure from -$3.5 billion to $553 million.
Moving forward, the investment banking business is likely to remain under pressure over the subsequent quarters. However, net interest income is expected to continue its growth momentum. All in all, Bank of America’s revenues are estimated to touch $93.1 billion in FY2022. Additionally, BAC’s adjusted net income margin is likely to stabilize at around 28%, leading to an adjusted net income of $25.9 billion. This coupled with an annual EPS of $3.16 and a P/E multiple of just above 14x will lead to the valuation of $45.
With inflation rising and the Fed raising interest rates, Bank of America has fallen 25% this year. Can it drop more? See how low can Bank of America stock go by comparing its decline in previous market crashes. Here is a performance summary of all stocks in previous market crashes.
|S&P 500 Return||1%||-16%||78%|
|Trefis Multi-Strategy Portfolio||0%||-15%||235%|
 Month-to-date and year-to-date as of 9/8/2022
 Cumulative total returns since the end of 2016
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