Bank of America Stock Is Trading Below Its Intrinsic Value

BAC: Bank of America logo
Bank of America

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 valuationThe 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.

Relevant Articles
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  2. Trailing S&P500 by 26% Since The Start Of 2023, What To Expect From Bank of America Stock?
  3. Bank of America Stock Has An 83% Upside To Its Pre-Inflation Shock
  4. Bank of America Stock Is Trading Below Its Intrinsic Value
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  6. Is Bank of America Stock Fairly Priced?

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 Returns Jun 2023
MTD [1]
YTD [1]
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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