Case Study: What Credible analysts are saying on Bank of America (BAC) stock
Key Points
Performance
Bank of America rose by 2.2% on Friday, pushing their year-to-date performance up to 5.1%. This compares favorably to the S&P 500, which is up by approximately 4.6% during 2023 thus far.
Event & Impact
Bank of America announced Q4 results this week, beating Wall Street’s expectations on both the top and bottom lines. The bank posted Q4 sales of $24.53 billion, which was up by 11.2% on a year-over-year basis, beating Wall Street’s estimates by $360 million, and GAAP EPS of $0.85/share, which beat consensus estimates by $0.08/share.
Noteworthy News:
Strong net interest income (bolstered by higher rates) and Bank of America’s more diversified loan book have helped this stock to outperform its peers over the last 6 months.
Nobias Insights
57% of recent articles published by credible authors focused on BAC shares offer a “Bullish” bias. Furthermore, the average price target being applied to Bank of America shares by the credible analysts that the Nobias algorithm tracks is $43.50 which implies upside potential of approximately 23.5% relative to the stock’s current share price of $35.23.
Bullish Take Growth at a Good Price, a Nobias 4-star rated author, said: “I added heavily to my Bank of America position last year, and I have no plans to stop this year. Bank of America Corporation definitely is a solid pick to consider for 2023.”
Bearish Take Chris Lau, a Nobias 4-star rated author said, “The FOMC cut its GDP growth targets for 2023. It expects the GDP will grow by only 0.5%, as shown below. The negligible growth forecast is as good as predicting a mild recession next year, followed by a rebound from 2024 to 2025.”
BAC Jan 2023
A slew of “big banks” reported earnings this week, giving investors a sense of how well the economics is performing and a glance at what to expect from the financial sector as we head into the fourth quarter earnings season.
Bank of America (BAC) was one such company; BAC reported Q4 results on Friday, beating Wall Street’s consensus estimates on both the top and bottom lines. This earnings data caused BAC shares to rally by 2.20% on Friday, pushing their year-to-date returns up to 5.13% (ahead of the S&P 500’s 4.6% year-to-date gains).
Several credible authors highlighted favorable macro conditions for the bank (highlighting the benefits associated with higher interest rates, bolstering net
Bearish Nobias Credible Analysts Opinions:
In a recent article. Chris Lau, a Nobias 4-star rated author, touched upon the Federal Reserves’ recent rate hike decision and his outlook for the U.S. economy, from a macroeconomic standpoint. He noted that after the December rate hike, “The benchmark interest rate is at the highest level in 15 years.” Lau continued, “Since rates are below that of inflation, investors should model a range of 4.9% to 5.6% in 2023.”
Looking forward, he wrote, “According to its, investors should expect sustained interest rates in 2023. The “pivot” will not start until 2024 when the lowest projected rate is still above 3.0%.”
Lau then went on to highlight some of the commentary provided in the December FOMC statement. He said, “The FOMC reaffirmed its attentiveness to inflation risks. It cited elevated inflation reflects the imbalance between supply and demand. Conversely, the economy is adding jobs. Unemployment rates remain low. Most importantly, it reaffirmed the bank’s objective of maximum employment and inflation at 2% in the long run.”
Regarding the potential for a recession, he stated, “The FOMC cut its GDP growth targets for 2023. It expects the GDP will grow by only 0.5%, as shown below. The negligible growth forecast is as good as predicting a mild recession next year, followed by a rebound from 2024 to 2025.”
Bearish Nobias Credible Analysts Opinions:
Dave Kovaleski, a Nobias 4-star rated author, published an article on Bank of America this week, highlighting the quality of its business heading into its Q4 earnings report. He said, “Bank of America Corp. actually finished the year on a high note, relatively speaking. Bank of America gained 6.39% in the second half of 2022, according to S&P Global Market Intelligence.”
Kovaleski continued, “Bank of America, the second largest U.S. bank, actually outperformed the average bank stock in the second half of 2022.” He noted, “For the entire year of 2022, the index [referring to the KBW Nasdaq Bank Index] was down 21.4%, while Bank of America fell slightly more, 23.8% in calendar year 2022.”
What caused this relative outperformance? Kovaleski stated, “Rising interest rates allowed the bank to generate high levels of net-interest income on its loans, which offset losses in other portions of its business, particularly investment banking and asset management.”
He also highlighted two other bullish factors which have been serving as tailwinds for the bank. Kovaleski wrote, “One, loan activity remained robust, as average loan balances were up 11% year over year to $1.0 trillion in Q3. The second key metric is credit quality. Bank of America was able to lower its net charge-off ratio in Q3 from the previous quarter and keep it on par with Q3 2021.”
Finally, he said, “Bank of America has benefited from a decade-plus long commitment to diversifying its loan mix. In 2009, 67% of its loans were consumer loans. In 2022, 56% of loans are commercial loans, with 44% consumer loans. This has helped lower the bank's credit risk.”
Kovaleski concluded, “Bank of America is in a good position to continue its positive momentum given high interest rates, its anticipated loan growth, and its good credit quality.” “Overall,” he said, “the worst should be over for Bank of America. This year remains fraught with uncertainty, but ultimately, the stock should have a better year in 2023.”
Growth at a Good Price, a Nobias 4-star rated author, covered Bank of America’s Q4 results in a report that they published at Seeking Alpha this week. The author said, “Bank of America Corporation (NYSE:BAC) just released its fourth quarter earnings and beat expectations.”
“In the quarter,” Growth at a Good Price, continued, “we saw a big jump in net interest income, likely due to the 7.2% increase in credit card spending that was reported by credit card companies prior to the release.” The author said, “Q4 was the second quarter in a row when NII went up more than 20%”.
Furthermore, Growth at a Good price highlighted Q4 fundamental data, writing, “ In the fourth quarter, Bank of America delivered:
$24.5 billion in revenue, up 11% (a beat).
$7 billion in net income, up 1.42%.
$0.85 in diluted EPS, up 3.65% (a beat).
$9 billion in pre-tax, pre-provision earnings, up 23%.
$1.1 billion in investment banking fees.”
They continued, “In the quarter, we saw Bank of America profit off of rising interest rates yet again, despite the yield curve inversion observed in the period.” “Generally speaking,” the author noted, “inverted yield curves are thought to be bad for banks, because they borrow on the short end and lend on the long end.”
Also, they said, “Bank of America itself expects the macroeconomic picture to be troubling. It raised PCLs (reserves set aside for underperforming loans) by $403 million and used the phrase "dampened macroeconomic outlook" five times in its press release. It appears that investors are betting on tough times for the big banks in 2023.”
However, Growth at a Good Price believes that this stock continues to benefit from long-term tailwinds. They wrote, “Looking ahead past 2023, we can see that Bank of America has several long-term advantages” Breaking down these bullish aspects, the author said, “It has strong brand recognition. It has a more than adequate 11.2% CET1 ratio. Finally, with a large investment banking division, it could benefit if the Fed finally pivots in 2024.”
Ultimately, they said that their “favorite aspect of Bank of America” is “the valuation.” Growth at a Good price said, “According to Seeking Alpha Quant, it trades at:
10.9 times earnings.
3 times sales.
2.92 times sales.
1.15 times book value.
37 times operating cash flow.”
Nicholas Ward is a Senior Investment Analyst at Wide Moat Research. He has spent the last 8 years writing about the stock market at various publications, including Seeking Alpha, The Street, Forbes Real Estate Investor, Sure Dividend, The Dividend Kings, iREIT, Safe High Yield, and The Intelligent Dividend Investor.
They concluded, “The bottom line on Bank of America Corporation is that it is a highly profitable bank whose earnings just easily surpassed expectations.”
Growth at a Good price finished the report stating, “I added heavily to my Bank of America position last year, and I have no plans to stop this year. Bank of America Corporation definitely is a solid pick to consider for 2023.”
Overall bias of Nobias Credible Analysts and Bloggers:
Overall, 57% of recent articles published by the credible authors that the Nobias algorithm tracks (only those individuals with 4 and 5-star Nobias ratings) expressed a “Bullish” bias towards Bank of America stock.
Furthermore, the average credible analyst price target being attached to BAC shares implies bullish price action as well.
Presently, the average price target being applied to BAC is $43.50 which implies upside potential of approximately 23.5% relative to the current stock’s share price of $35.23.
Disclosure: Nicholas Ward has no BAC position. Nicholas Ward wrote this article for Nobias at their request with the intention of giving investors a balanced perspective based on the writings of Nobias highly rated analysts and bloggers. Nobias has no business relationship with any company whose stock is mentioned in this article and does not have a position in this stock.
Additional disclosure: All content is published and provided as an information source for investors capable of making their own investment decisions. None of the information offered should be construed to be advice or a recommendation that any particular security, portfolio of securities, transaction, or investment strategy is suitable for any specific person. The information offered is impersonal and not tailored to the investment needs of any specific person.
Disclaimer: The Nobias star rating is based on past performance results and is not an indicator of future results. These past performance returns do not represent returns that any investor actually earned. Assumptions made include the ability to purchase the stocks recommended by the author under liquid markets where the transaction would be at the market price for the day. In reality, loss in liquidity may have a material impact on the returns that actually may have been earned. Further, returns are calculated without any including transaction costs, management fees, performance fees or expenses, or reinvestment of dividends and other income. This information is provided for illustrative purposes only.