Bank of America Corporation (BAC) Buy or Sell Stock Guide

Last updated: Last Wednesday

The analysis below may be helpful to you if you have any of the following questions about BAC stock:

  • Is BAC a buy or a sell?
  • Should I sell or hold BAC stock today?
  • Is BAC a good buy / a good investment?
  • What are BAC analyst opinions, recommendations, ratings?

Here are BAC stock buy reasons/signals:

1. Bank of America is poised to succeed as a provider of retail banking and wealth management services on a nationwide scale.

2. CEO Brian Moynihan has slowly repaired years of damage while mostly staying out of the headlines.

3. Many of Bank of America's past problems were a result of poor capital-allocation decisions. The company's size (it is now too big to make material acquisitions) along with increased regulatory scrutiny reduces this risk going forward.

4. After years of facing margin pressure owing the low rates, Bank of America is finally looking forward to gradual improvement in the rate environment. Net interest yield increased from 2.19% in 2015 to 2.25% in 2016 and to 2.37% in 2017. Net interest income (NII) is also improving driven by higher rates and loan balance.

5. Further, declining expenses continue to support Bank of America’s financials. Its expense-saving plan – Project New BAC (launched in 2011) – helped improve overall efficiency and save as much as $8.0 billion in operating expenses annually till the end of 2014. Further, the same declined at a three-year CAGR of 2.6% (till 2017 end). The company continues to align its banking center network according to customers’ needs, through divestitures/consolidations of branches.

6. Moreover, Bank of America remains focused on acquiring the industry's best deposit franchise. The company’s deposit balances continued to grow, despite an overall sluggish global economic environment, at a three-year (2015-2017) CAGR of 4.6%. With steady economic growth, Bank of America’s initiatives to strengthen its deposit base will support profitability.

7. Bank of America’s sturdy capital deployment activities look impressive. In December 2017, the bank received the Fed’s approval for additional $5 billion share buyback authorization. This is in addition to its 2017 capital plan that included $12 billion share repurchase authorization and a whopping 60% dividend hike.

8. BAC forward dividend yield is 1.94%, higher than the industry (1.10%) and sector (1.06%) forward dividend yields.

9. BAC Price/Book ratio is 1.26, and it’s low compared to its industry peers’ P/B ratios.

10. BAC average analyst rating is Buy.

11. BAC average analyst price target ($34.25) is above its current price ($30.65).

Here are BAC stock sell reasons/signals:

1. A financial institution of this size and complexity is inherently unmanageable--it's even possible that regulators might decide to break up the company.

2. Bank of America has been cutting expenses for years, and the low-hanging fruit in this realm has been picked.

3. Digital competitors are nipping at the heels of traditional branched banks.

4. Challenges faced by Bank of America in improving fee income remain a major concern. Non-interest income declined at a CAGR of 2.6% over the last five years (2013-2017). Specifically, mortgage banking income is witnessing a drastic downtrend owing to a fall in refinancing and lower origination volumes.

5. Though Bank of America has resolved quite a many litigation issues, it still faces investigations from several federal agencies and a few foreign governments for its business conducts in the pre-crisis period. Legal expenses are expected to continue weighing marginally on the company’s bottom line in the near future.

6. BAC quarterly revenue growth was -1.50%, lower than the industry and sector average revenue growth (7.77% and 6.25%, respectively).

7. BAC profitability is declining. The YoY profit margin change was -0.75pp.

What are your thoughts on BAC?

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