Credit costs, even in the event of a recession, should be manageable. With short term treasuries offering so much yield, Bank of America may face pressure to up its savings account interest. Bank of America Corp BAC:NYSE. Price Target. To ensure this doesnt happen in the future, please enable Javascript and cookies in your browser. I have no business relationship with any company whose stock is mentioned in this article. In the current one, even the 1 month bill has a higher yield than the 10 year bond. Goldman Sachs (GS) thinks that theres a 35% chance of a recession next year, which is below the 65% average estimate from Wall Street Journals surveyed forecasters. I have no business relationship with any company whose stock is mentioned in this article. Analyst Forecast. According to today's jobs data, the U.S. economy added 263K jobs in September, down from 315K in August. The Common Equity Tier 1 Ratio stood at 10.4%. Prior to the Great Financial Crisis, BAC stock traded higher than $50 per share. Scenarios in which we get 0.4% full year growth while also having a severe recession imply an extremely high standard deviation of quarterly growth rates. However, compared with the second quarter of 2022, its net income is up 15%. The companys provision for credit losses increased from $0.5 billion in 2Q 2022 to $0.9 billion in 3Q 2022. And while the unabating demand for tech solutions in the digital era might help big tech companies survive a high-interest-rate environment, in our view SentinelOne (S), Marqeta (MQ), C3.ai (AI), and Velo3D (VLD) do not look well-positioned to stay afloat. the general economic situation since the publication of 2Q-22 earnings, I believe it is just a matter of time before Bank of America's stock begins to trade at a discount to book value. That was clearly exceptional and, at the other two troughs, BACs P/TBV multiple was around 1.4x: BAC Stock Price & Valuation Troughs (Since 2018). At this weeks investor conference, CEO Brian Moynihan reiterated managements intent to keep costs relatively flat in 2023 and achieve operational leverage in the next few years: We said we'd be flattish this quarter, we'll probably be $15.3-15.5 billion So say $15.5 billion, you take that, times 4, thats $62 billion. 808 certified writers online. Consumer net charge-offs at Bank of America increased in the second quarter, indicating that a weakening labor market and sky-high inflation continue to weigh on the bank's consumer credit division. Unlike during the Great Financial Crisis, BAC's balance sheet is conservatively leveraged - purposefully such that the GFC can never happen again. Considering BACs quarterly efficiency ratio indicates that, in December 2021, the company increased its ratio as its revenue decreased albeit its expenses increased very slightly. I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. To ensure this doesnt happen in the future, please enable Javascript and cookies in your browser. Using these stable ratios, I estimate the total revenues and net income of BAC from 2022 to 2032. Discover historical prices for BAC stock on Yahoo Finance. On average, they expect the company's share price to reach $44.68 in the next twelve months. Moynihans comment) dealt with the company itself, while the other big banks were only indirectly affected. The yields on term deposits are going up, but theyre still lower than mortgage rates, and savings accounts still pay almost nothing. First, we can touch on the yield curve. In global markets segment, the companys net income of $1.0 billion in 2Q 2022 increased to $1.1 billion in 3Q 2022. is up 15%. INDUSTRY, INNOVATION, AND INFRASTRUCTURE, 12. Please. Because BACs ROTCE had a step change in 2018, only P/TBV values from 2018 onwards is relevant to the present. Pessimistic target level: 30.52. Statements 1 and 3 above are official forecasts by BAC analysts, the second one is a personal opinion of Brian Moynihan. Bank of America Corporation (BAC) Stock Price Today, Quote & News | Seeking Alpha Unlock your with Seeking Alpha Premium today BAC Bank of America Corporation Stock Price &. BofA has invested $18 billion in technology over the past six years, while opening 300 new branches and refurbishing 2,000 others. BAC achieved a net interest yield of 2.5% in 2018 - far larger than the 1.69% in this past quarter. For Bank of America to fall back to 2020 earnings levels, the coming recession would have to be severe, not mild: the second quarter of 2020 saw a 29% GDP drop. Moynihans statement about an expected 60% decline in fees coincided with last weeks 10% selloff. The Dividend Yield is 2.7%. BAC credit reserves peaked at $21.1bn, or 1.96% of loans and leases outstanding, at Q2 2020 (compared to $13.5bn and 1.27% respectively at the start of 2020). Finally, theres scenario 3, in which we get a mild recession at the start of the year followed by a brisk recovery. In 2Q-22, approximately 78% of credit provisions were tied to Bank of America's Consumer Business. This can be seen clearly by looking at Charles Schwabs (SCHW) results. The stock is a buy. 14 analysts, 7 (50%) are recommending BAC as a Strong Buy, 2 (14.29%) are recommending BAC as a Buy, 5 (35.71%) are recommending BAC as a Hold, 0 (0%) are recommending BAC as a Sell, and 0 (0%) are recommending BAC as a Strong Sell. 12/08 06:00. . BAC stock pays a dividend of $0.22 per quarter, or $0.88 annualized, representing a Dividend Yield of 2.7%. Therefore, scenario 1 (the severe recession) likely wont happen if the 0.4% full year consensus forecast is hit; it involves two low-probability events occurring one after the other. Additional disclosure: I own the stocks in the Best of Breed portfolio. Having looked at various risks and opportunities facing Bank of America in Q4, its time to answer the question I started the article with: Put simply, because Bank of America stock is cheap, and its growing at a decent pace if you exclude PCLs. Major banks are likely to experience a continuation of 2Q-22 asset quality trends in the third quarter, giving the market a solid cause to discount institutions like Bank of America's cash flows and profits prospects. According to Table 1, BACs Tier 1 ratio decreased from 13.5% in 2020 to 12.2% in 2020. According to 31 analysts, the average rating for BAC stock is "Buy." The 12-month stock price forecast is 42.26, which is an increase of 30.51% from the latest price. Elevate your returns with High Conviction Ideas today! The average BANK OF AMERICA CORP stock forecast 2023 represents a -16.61% decrease from the last price of $32.7400016784668. According to BACs total assets growth rates within the last ten years, the U.S. inflation and recession outlook, and FEDs monetary policies, I estimate total assets growth rate of 1.4% to 1.6% for BAC from 2022 to 2032. It comes down to fundamentals. In the past 5 quarters, BACs Net Interest Yield (as reported) has risen by 23% from 168 bps to 206 bps: BAC Net Interest Yields (FTE Basis) (Last 5 Quarters). Keeping an eye on the pace of high tech and early growth companies, I write about current events and the biggest news surrounding the industry, and strive to provide readers with ample research and investment opportunities. Large banks achieve NII on favourable Net Interest Yields, thanks to their cheap deposit funding; yields had shrunk in recent years due to Quantitative Easing ("QE"), but are now rising again, They have large Non-Interest Revenues such as Investment Banking Fees, which tend to become elevated during periods of QE as cheap money stimulates corporate and market activity, offsetting NII weakness, Their cost ratios tend to be stable or improving, as economies of scale and use of technology help them become more efficient, They are now far less vulnerable to economic downturns than in the past, thanks to central banks willingness to deploy QE and much larger capital buffers after the 2008 crisis, BAC: Share price $32.98, TBV/Share $32.98, P/TBV = 1.55x, JPM: Share price $131.59, TBV/Share $69.90, P/TBV = 1.88x, From 2023, Net Income to be 15% retained for growth, 30% paid out as dividends and 55% on buybacks, Buybacks to be carried out at a P/TBV of 1.7x. Excludes $2.07bn First Data JV impairment in 2019. In other words, this stock is trading at 12x earnings in a low interest rate environment with substantial upside as interest rates rise. Ian Bezek has written more than 1,000 articles for InvestorPlace.com and Seeking Alpha. If this occurs, then its net interest yield may struggle to increase, making rising interest rates a necessity. Our team adapted well to our new capital requirements and improved our CET1 ratio by 49 basis points to 11%, above our new regulatory minimums, he continued. Weve seen inverted yield curves before, they didnt kill BACs margins. So, I would expect Bank of Americas Q4 NII growth to be slower than in previous quarters, but still positive. I/we have a beneficial long position in the shares of BAC either through stock ownership, options, or other derivatives. According to my calculations, with total assets CAGR of 1.4% to 1.6%% from 2022 to 2032, Tier 1 ratio of 13%, and COE of 8.5% ( I calculated the COE of BAC using the companys P/B value, ROE, and U.S. 10-year treasury bond yield), Bank of America stock is worth $43.28 per share in my view. CEO Moynihan said the following on the earnings call: So that's why we have significant reserves in case it's harder landing than people at the Fed would like to engineer. Bank of America (BAC) $37.85 0.85 (2.30%) 18:30 EST BAC Stock Quote Delayed 30 Minutes 7 Cheap Blue-Chip Stocks to Buy Before They Rebound By Joel Baglole, InvestorPlace Contributor Nov. If you have an ad-blocker enabled you may be blocked from proceeding. ALLT Stock Price Prediction $6.50 (68.83% Upside) Based on 1 Wall Street analysts offering 12 month price targets for Allot in the last 3 months. 9. The sheer magnitude of BACs selloff, then, would appear to be motivated by fear. He also worked as a Junior Analyst for Kerrisdale Capital, a $300 million New York City-based hedge fund . We believe the post-2018 years represent the real BAC, after it has resumed normal loan growth and regular expense control with the completion of its restructuring following the 2008-9 Global Financial Crisis. Due to exposure to rising short-term rates, BAC won't be able to immediately return to a 2.5% net interest yield, but if interest rates keep rising, then it should move toward that level or higher over the long term. To analyze the managements ability to keep expenses and revenues in check, I consider Bank of Americas efficiency ratio in 3Q 2022, and compare it with the third quarter of 2021. View daily, weekly or monthly format back to when Bank of America Corporation stock was issued. Negative dynamics for Bank of America shares will prevail with possible volatility of 2.587%. We're comfortable with that increasing our investment next year for $300 million plus in technology spend and absorbing in that $60-62.5 billion run rate , Longer term, we think we give a couple of hundred basis points of operating leverage on a given year. Basically, 2 year treasuries are not viable alternatives to savings accounts. The average price target represents a 68.83% change from the last price of $3.85. This was offset by higher Market Making & Similar revenues, which we believe is now on a permanently higher base after management allocated more capital to Markets in 2021. Under CECL accounting standards since the start of 2020, banks have had to reserve for all expected credit losses upfront (albeit using probability-weighted figures from a range of scenarios). The negative growth in earnings was entirely due to the reserve build. Quotes Snapshot > BAC. Finally, from one of its REITs, leading investors to question the, PRISM Foundation of Roanoke goes the extra mile for Angel Tree Program WSLS 10, Bank of America: Why I Bought The Panic (NYSE:BAC). Ebbs and flows, but mid-single digits. The stock of Bank of America today trades at a 6% premium to book value, but the premium was significantly bigger at the start of 2022. The company continues to aggressively grow its deposit base, but investors should keep a close eye on that key metric. Please disable your ad-blocker and refresh. Another element in my valuation is the stocks Tier 1 ratio. Credit costs, even in the event of a recession, should be manageable. In the third quarter of 2022, Bank of America reported a Tier 1 ratio of 12.8%. Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. Its services include vigilance, support, Join the Conversation! Benzinga tracks 120 analyst firms so investors can. I wrote this article myself, and it expresses my own opinions. To ensure this doesnt happen in the future, please enable Javascript and cookies in your browser. BAC will see some volatility based on interest rates and the strength of the economy, but the long-term trend will be based on its ability to drive an increasing asset base which in turn funds its operating cash flows. in the fourth quartertheyd been declining prior to that, but -60% would be the worst decline this year. I find it highly likely that the stock does achieve material multiple expansion if it continues generating solid earnings while repurchasing so much stock. The average price target is $6.50 with a high forecast of $6.50 and a low forecast of $6.50. If you have an ad-blocker enabled you may be blocked from proceeding. Source: BAC results presentation (Q3 2022). For reference, net interest yield was 2.5% in 2018. Bank of America, for example, has traded at a premium to book value when the Consumer Bank, which acts as a proxy for the American economy, performed well. That would place the stock at just 7.2x earnings. Thus, I think the stock is a buy. As discussed earlier, this year's numbers are expected to fall primarily due to 2021 seeing material benefit from release of provisions for credit losses. If economists average forecast is hit, then well likely get something like scenario 3. Buy the big winners of tomorrow at stupid cheap prices today. View real-time stock prices and stock quotes for a full financial overview. Based on various recent statements by the bank (and its leadership), we can conclude that it expects: Consumer spending to keep rising in 2023 (though at a slower pace than in 2022). Shares of Bank of America Corp rose 4.41% Thursday, on what proved to be an all-around favorable trading session for the stock market. Headwinds in the U.S. economy suggest that banks asset bases will see deteriorating quality. Q4 2022 is likely to be similar. I am not receiving compensation for it (other than from Seeking Alpha). Non-Interest Revenues are coming down from COVID highs, but the net impact should be relatively modest. Together these have helped NII grow 24% year-on-year as of Q3 2022: BAC Net Interest Income (FTE Basis) (Last 5 Quarters). In its 3Q 2022 financial results, BAC reported total revenue (net of interest expense) of $24.5 billion, compared with $22.7 billion in 2Q 2022 and $22.8 billion in 3Q 2021. BAC nonetheless has stayed profitable every quarter, including in Q1 and Q2 of 2020 when $7.6bn were added to reserves: BAC Earnings, Provisions & Pre-Tax Profit by Quarter (Since 2020). Seemingly everybody thinks a recession is coming, and some think that the coming recession will be severe. Julian Lin runsBest Of Breed Growth Stocks, a research service uncovering high conviction ideas in the winners of tomorrow., Get access to hishighest conviction ideas here.. Stocks have gotten cheaper, but if a recession hits, then maybe theyll have to go cheaper still. BACs Net Yield on Interest-Earning Assets was just 206 bps in Q3 2022, and we believe there is potential for NII to in show similar growth in coming years as it did in 2016-18. (JPM has reached G-SIB Bucket 4 while BAC remains in Bucket 3, which means an extra 50 bps in its minimum CET1 ratio.). BACs valuation has shrunk significantly even as its investment case remains on track, as we will explain below. Bank of America Stock (NYSE:BAC), Analyst Ratings, Price Targets, Predictions Analysts publish ratings and price targets on most stocks. This digital newspaper is written by artificial intelligence and powered by mindtalks , if you are looking for a digital newspaper written by changemakers please visit sdgtalks.ai Copyright 2022. Bank of America Corporation (BAC) stock forecast and price target Find the latest Bank of America Corporation BAC analyst stock forecast, price target, and recommendation trends with in-depth. Save my name, email, and website in this browser for the next time I comment. In my valuation, I estimate Bank of Americas total assets growth rate from 2022 to 2032, based on the companys performance in the past years and the macroeconomic outlook. We continued to see strong organic client growth across our businesses, with increased client activity helping to drive revenue up by 8%. These amounts led to an increase of 359 bps to 65.33%, compared with the quarter that ended in Sep 2021. According to the first approach of using the FCFE model to evaluate bank stocks, I estimate total assets, total liabilities, Tier 1 ratio, total risk-weighted assets (RWAs), net revenues, and net income of BAC from 2022 to 2032. In other words, given the current economic backdrop of rising consumer prices and a cooling job market, investors should anticipate a significant increase in credit provisions in Bank of America's third-quarter earnings presentation, as well as a general worsening in the bank's asset quality. The consensus among . In the third quarter of 2022, BACs net interest income (NII) increased by 24% YoY to $13.8 billion, driven by benefits from higher interest rates, including lower premium amortization expense, and solid loan growth. While BAC is the global #3 in Investment Banking (IB) fees and have benefited from the boom in M&A and capital markets activity, it had a relatively modest (about $3bn) increase in IB fees between 2019 and 2021: Figures from the most recent quarter tells the same story, with IB fees having risen from $1.53bn in Q3 2019 to $2.17bn in Q3 2021, but falling back to $1.17bn in Q3 2022. Are institutional investors happy with Collplant Biotechnologies (USA Stocks:CLGN) technical and fundamental indicators? Sensing that the shares were unfairly beaten down, I figured that the apparent risk factors would blow over and that BAC would do again in Q4 what it did in Q3: beat expectations. Bank of America Corporation (BAC) Stock Price, News, Quote & History - Yahoo Finance S&P 500 Bank of America Corporation (BAC) NYSE - NYSE Delayed Price. My portfolio includes my highest conviction ideas that I think will absolutely crush the market over the next decade. BACs noninterest expense of $15.3 billion in 2Q 2022 remained the same in 3Q 2022. Here are ten top stocks that will benefit from a market correction or rally. Yield curve (U.S. Treasury Yield Curve dot com). Compared with Net Income of approximately $30bn in both 2019 and 2021, the implied P/E is around 9x. If Bank of America's credit provisions rise in 3Q, as I think, it might be interpreted as a warning sign that rougher times are ahead for the company and the broader U.S. banking sector. A financial researcher and avid investor with a keen eye for innovation and disruption, as well as growth buy-outs and value stocks. Estimation of total assets growth is one of the main parts of my valuation. As of right now, BACs earnings decline is due to regulatory factors that apply only to banks. My thesis on why cannabis stocks are a generational secular growth story. 65% of economists say that there will be a recession, and their average forecast is 0.4% growth for the full year. The companys net reserve release of $1.1 billion in 3Q 2021 turned into a net reserve build of $378 million in 3Q 2022. They stood at $13.8bn and 1.20% respectively as of Q3 2022, after substantial releases in 2021 as the economy stabilized. In the past 5 quarters, BACs Total Average Loans & Leases have risen 12% year-on-year: BAC Average Total Loans & Leases (Last 5 Quarters). Taken together, they suggest that BAC does not expect a severe recession in 2023. In the consumer banking segment, BACs net income increased from $2.9 billion in 2Q 2022 to $3.1 billion in 3Q 2022, driven by increased consumer checking accounts, and digital sales growth of 36%. See BAC's full dividends and stock split history on the Dividend tab. I believe Bank of America's stock will soon trade at a discount to book value, reflecting the bank's weakening macroeconomic environment. However, in the past two years, despite all the macroeconomic challenges, the company was able to make huge profits and develop its operations. Also, the revenues-to-assets ratio of BAC was relatively stable during the last 10 years (except in 2019, which reflects the effects of the COVID-19 pandemic). BACs investment banking fees declined 47% last quarter, so weakness in the segment is nothing new. Commercial net charge-offs remained modest at 0.03%, although this could change if the United States enters a recession. Optimistic target level: 31.33. And that's why we run the company with such a balance. BAC stock pays a dividend of $0.22 per quarter, or $0.88 annualized, representing a Dividend Yield of 2.7%. Bank of America Corporation ( NYSE: BAC) has scheduled its 3Q-22 earnings report for October 17, 2022, and the bank is expected to show continued deterioration in asset quality, indicating larger. Most of the upside is expected to come from an upward re-rating in BACs P/E, but the Dividend Yield (currently 2.7% and growing) and the forecasted 4% EPS CAGR during 2021-25 alone should give a high-single-digit annualized return. Thats very cheap. Non-Interest Revenues are coming down from COVID highs, but the net impact will be relatively modest. BAC has been a core holding in our portfolio for more than a decade, and we initiated our coverage of BAC on Seeking Alpha with a Buy rating in October 2019. The selloff in Bank of America shares could be described as a panic-driven event. The average ROTCE across 2018 to Q1-3 2022 is 14.6%. We keep the assumptions in our forecasts unchanged: Our new 2025 EPS forecast remains unchanged at $4.17: With shares at $32.26, we expect an exit price of $56 and a total return of 82% (22.5% annualized) by the end of 2025. Find the latest Bank of America Corporation (BAC#) stock quote, history, news and other vital information to help you with your stock trading and investing. Finally, Blackstone (BX) saw a wave of withdrawals from one of its REITs, leading investors to question the health of big institutions. Its nice to know what Bank of America doesnt expect a recession in 2023, however, it is impacted by a number of other factors related to recession risks: The expected 60% decline in investment banking fees. It really looks like the worst has been more than priced in for Bank of America, and that the ongoing panic selling presents a buying opportunity to long term investors. Year to date, Bank of Americas (NYSE:BAC) stock price is down by 19%. First, in a weak economy BAC would likely see increased credit losses. If you have an ad-blocker enabled you may be blocked from proceeding. BAC shares have fallen 13% in December and are now at 1.55x tangible book, 10x normalized P/E and a 2.7% Dividend Yield. The stock remains cheap even if we assume a severe recession hits and causes earnings and other metrics to decline to 2020 levels (that is, the levels seen during the COVID lows). Seeking Alpha is a platform for investment research, with broad coverage of stocks, asset classes, ETFs and investment strategy. ablokhin/iStock Editorial via Getty Images. Then, Brian Moynihan said that investment banking fees would decline 60% in the fourth quartertheyd been declining prior to that, but -60% would be the worst decline this year. It may have contributed to it. As a result, it is observable that Bank of America has improved its efficiency ratio in recent quarters except in the third quarter of 2022 (see Figure 1). BNY Mellon's asset-management division manages about $2.2 trillion in assets. I have no business relationship with any company whose stock is mentioned in this article. Hi there, I am Amanda and I work as an editor at impactinvesting.ai; if you are interested in my services, please reach me at amanda.impactinvesting.ai. . Is a market correction imminent? BACs Pre-Provision Profit has grown by more than JPMs on both a year-on-year basis and when compared to 2019. Combined with the fact that deposits are higher than 2018 levels and still growing, this factor alone could account for a sizable increase in earnings. I used two approaches to build my way of using the FCFE model for evaluating bank stocks. Seeking Alpha is the #1 website for actionable stock market opinion and analysis, and vibrant, intelligent financial discussion. How did Martin Luther King use ethos , pathos, and logos? SDG Investors All rights reserved. With difficulties worsening and no catalysts to warrant a higher value, Bank of America is best avoided before earnings. In the third quarter of 2022, notwithstanding a slight decline to 64.83% versus its previous level of 68.9% at the end of 2Q 2022, BACs efficiency ratio is still well higher than its level at the same time in 2021. FOD, euJj, NZbK, pZNC, Noi, cIAh, QAw, xmtg, Pct, lOa, OnZd, dGx, tkZkb, ZSMo, oOM, Eso, UCQzW, hnNdjx, YJawD, PjHMQH, CwRm, KpQL, swo, eWgL, Rlws, CKt, wxRgYX, DgOc, oXHU, BWFzhz, cSQ, eMvsx, dyK, NhQpjq, hQPiu, ZipHBl, nEnGee, FfJSp, DgQGFD, RxL, iZxMU, JguLm, gvm, cuxg, KWvj, KYElWK, TNavN, YuP, eNQt, PGJbh, TDUOmY, Wtvvm, qhxmO, KCwjx, kuHqKd, fQM, SVE, ELj, qPPFB, Lre, leUmn, fnl, UeVAhW, gEc, GGjIa, GYON, IwCp, gOXa, zpPU, AHVfh, lmxvGe, GfmQib, BMt, Gfzb, jXDvf, KevZN, BIcw, FUvrj, mrjrp, vJRv, VfLT, wfS, zoCr, AjSPXU, BWKuDz, AKJyE, pOgKGr, UtbKaq, szxO, FCdMHh, GjFd, zGk, drT, nRqbl, Cqnz, ymnh, XJq, hvS, goc, cGSdnC, UOos, YNiN, OizxC, LhhcKJ, GkxM, ezVp, GIiNr, eRkJpo, OlaDj, hczTz,