Bank of America Corp (BAC) upped its share repurchase program by $800 million Friday, and if this doesn’t get investors coming back to this year’s worst-performing big bank stock, who knows what will?
True, BAC’s addition to its existing $4 billion stock buyback isn’t a freebie for shareholders. It’s meant to offset dilution resulting from equity incentive compensation awarded to retirement-eligible employees.
But it’s still a good sign. The nation’s No. 2 bank by assets has the capital to deploy and was given the green light by Federal regulators. It was a drama-free procedure under a new regulatory framework, and that just underscores how far BAC has come.
Bank stocks were up broadly on Friday anyway thanks to a surge in Notice that BAC stock jumped as much as 3.6% on the news in early trading.
Besides, news than BAC is returning more cash to shareholders is also a good headline to have after this week’s Federal Reserve meeting. Everyone knew the Fed’s rate-setting committee was going to scale back its plan for rate hikes this year, but it still hurt already beaten-down bank stocks.
Banks need relief from compressed net interest margins, and a Fed projecting two rate hikes instead of four was not what anyone holding Bank of America stock needed to hear — not when some other stiff headwinds are starting to abate.
Better Times Ahead for BAC Stock
The plunge in oil prices, sluggish global growth and fears of a slowdown in the U.S. have made bank stocks big losers this year. The SPDR KBW Bank (ETF) (KBE) is off more than 7% so far this year, but the big money center banks are mostly faring worse.
Wells Fargo & Co (WFC) is essentially tracking that benchmark, but JPMorgan Chase & Co. (JPM) and Citigroup Inc (C) are down and 8% and 16%, respectively. Holding up the rear is BAC stock with a year-to-date loss of 18% even after Friday morning action.
And it’s that laggard position that makes Bank of America stock perhaps the most compelling buy of the big bank group. First-quarter bank earnings aren’t going to be great for Bank of America or any other name, but that should be discounted in the stock by now.
Heck, if BAC beats Wall Street’s earnings forecast like it has for the last three reporting periods, it’s a good bet that shares will pop.
The reality is that BAC stock more than reflects the risks presented by defaults in the energy sector or perceived weakness in the U.S. economy. Indeed, Bank of America stock now trades at just 0.59 times its book value. Even Citigroup gets slightly more credit than that.
If you’re bullish — even if it’s only mildly so — on the domestic scene, then you’ve got to believe that BAC stock is a bargain. The economy isn’t going anywhere without taking Bank of America along for the ride.
As of this writing, Dan Burrows did not hold a position in any of the aforementioned securities.
