Trailing S&P500 by 26% Since The Start Of 2023, What To Expect From Bank of America Stock?

+4.71%
Upside
34.31
Market
35.93
Trefis
BAC: Bank of America logo
BAC
Bank of America

Bank of America’s stock (NYSE: BAC) is down 1% since the start of 2023, as compared to the 25% rise in the S&P500 index over the same period. Further, at its current price of $33 per share, it is trading 9% below its fair value of $36 – Trefis’ estimate for Bank of America’s valuation

Amid the current financial backdrop, BAC stock has witnessed gains of 15% from levels of $30 in early January 2021 to around $35 now, vs. an increase of about 25% 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 47% in 2021, -26% in 2022, and -1% 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 V, JPM, and MA, and even for the megacap stars GOOG, TSLA, and MSFT.  In contrast, the Trefis High Quality (HQ) 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 missed the street expectations in the fourth quarter of 2023, with total revenues decreasing 10% y-o-y to $22 billion. It was because of a 4% drop in consumer banking, a 3% decline in global wealth & investment management, and an 8% decrease in global banking segments. While consumer banking revenues suffered due to lower deposit balances, wealth & investment management and global banking were mainly down due to a drop in net interest income (NII). On the flip side, the top line was somewhat supported by a 6% rise in the global markets unit, primarily due to higher sales & trading income. In terms of expenses, total noninterest expenses as a % of revenues witnessed an unfavorable increase in the quarter, mainly because of a Federal Deposit Insurance Corporation (FDIC) special assessment of $2.1 billion. Overall, the adjusted net income declined by 59% y-o-y to $2.8 billion. 

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The bank’s top line grew 4% y-o-y to $98.6 billion in FY 2023. It was driven by a 9% growth in consumer banking, a 12% rise in global banking, and a 7% increase in global market divisions. However, the positive impact was partially offset by lower global wealth & investment management and all other segment revenues. On the cost front, provision for credit losses jumped from $2.5 billion to $4.4 billion. Further, total noninterest expenses as a % of revenues increased in the year. Altogether, it led to a 4% y-o-y decline in the adjusted net income to $24.9 billion. 

Moving forward, we expect Q1 FY2024 results to be on similar lines. Overall, the Bank of America revenues are forecast to touch $100.4 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 $25.08 billion. This coupled with an annual GAAP EPS of $3.19 and a P/E multiple of just above 11x will lead to a valuation of $36.

 Returns Jan 2024
MTD [1]
Since start
of 2023 [1]
2017-24
Total [2]
 BAC Return -3% -1% 48%
 S&P 500 Return 0% 25% 114%
 Trefis Reinforced Value Portfolio -2% 35% 594%

[1] Returns as of 1/16/2024
[2] Cumulative total returns since the end of 2016

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