Bank of America’s stock (NYSE: BAC) has outperformed the S&P 500 index, with an 11% year-to-date increase compared to the index’s 8% rise. Despite trading at $37 per share, which is 6% below its fair value estimate of $40, the stock has seen gains in recent months. From early January 2021 to now, BAC stock has increased by 15% from $30 to around $35, although its performance has been inconsistent. In 2021, the stock gained 47%, but it saw a decrease of 26% in 2022 and only a 2% increase in 2023. This underperformance compared to the S&P 500 has been a common trend among individual stocks in recent years.
The bank’s first-quarter results for 2024 exceeded street estimates, despite a 2% decline in total revenues to $25.8 billion. This decline was primarily driven by a 3% drop in net interest income, which accounts for close to 60% of the top line. However, higher investment banking fees, asset management fees, and equity trading revenues helped offset this decrease. On the cost front, provisions for credit losses increased by 42% to $1.3 billion, leading to a 20% year-over-year decrease in adjusted net income to $6.14 billion. Noninterest expenses as a percentage of revenues also rose in the quarter.
In FY 2023, Bank of America’s top line improved by 4% to $98.6 billion, driven by increases in consumer banking, global banking, and global market segments. However, this growth was partially offset by declines in wealth and investment management and other revenues. Despite the increase in revenues, the bank saw a 4% year-over-year decrease in adjusted net income to $24.9 billion. Looking ahead to Q2 FY 2024, it is expected that this trend will continue, with revenues estimated to reach $101.9 billion and adjusted net income expected to be around $25.7 billion annually.
The bank’s performance in recent years has been mixed, with periods of outperformance followed by underperformance compared to the S&P 500. As the market faces uncertainties such as high oil prices and elevated interest rates, it remains to be seen whether Bank of America will continue to underperform the index or see a strong jump in the next 12 months. Nevertheless, Trefis’ High Quality Portfolio, consisting of 30 stocks, has consistently outperformed the S&P 500 each year over the same period, highlighting the importance of a diversified investment approach.
Overall, with an expected annual GAAP EPS of $3.26 and a P/E multiple just above 12x, Bank of America is projected to have a valuation of $40. Despite recent challenges, the bank remains optimistic about its future performance, supported by positive trends in consumer banking, global banking, and global market segments. It will be important to monitor the bank’s performance in the coming months to see if it can sustain its growth trajectory and continue to deliver value to its shareholders.
