Bank of America’s stock (NYSE: BAC) is up 11% YTD as compared to the 8% rise in the S&P500 index over the same period. Further, at its current price of $37 per share, it is trading 6% below its fair value of $40 – 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 35% 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 2% 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 (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 surpassed the street estimates in the first quarter of 2024, despite a 2% drop in the total revenues to $25.8 billion. The revenues suffered due to a 3% decline in the net interest income (NII) mainly driven by lower net interest yield. Notably, the NII contributes close to 60% of the top line. That said, the impact was somewhat offset by higher investment banking fees, asset management fees, and equity trading revenues. On the cost front, provisions for credit losses witnessed an unfavorable build-up of 42% to $1.3 billion. Further, noninterest expenses as a % of revenues increased in the quarter. Overall, the adjusted net income declined 20% y-o-y to $6.14 billion. 

The bank’s top line improved 4% y-o-y to $98.6 billion in FY 2023, primarily because of a 9% rise in consumer banking, a 12% gain in global banking, and a 7% increase in global market segments. However, the positive impact was partially offset by a drop in wealth & investment management and other revenues. On the expense front, the provision figure increased more than 75% to $4.4 billion, followed by higher noninterest expenses. Altogether, it resulted in an adjusted net income of $24.9 billion – down 4% y-o-y. 

Moving forward, we expect the same trend to continue in Q2 FY2024. Overall, the Bank of America revenues are estimated to touch $101.9 billion in FY2024. Additionally, BAC’s adjusted net income will likely be around $25.7 billion annually. This coupled with an annual GAAP EPS of $3.26 and a P/E multiple of just above 12x will lead to a valuation of $40.

[1] Returns as of 5/6/2024
[2] Cumulative total returns since the end of 2016

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.