Thanks in part to Donald Trump, and in part to Warren Buffett, Bank of America Corp (NYSE:BAC) has become one of America’s most beloved stocks over the last few months. BAC stock is up 9% in the past month, and likely will hit double digits with a 2% boost Wednesday morning. And since last November’s election, shares are up a whopping 45%.
Heck, BofA now trades at a premium to the bank’s book value — something the stock hasn’t been able to boast in quite some time.
You would expect that results would have improved to justify those gains, but they have not. BAC stock is up in anticipation of rising interest rates, and thus, rising spreads between what the bank pays for money and what it can get for it.
Based on results as reported in January, this stock should be going nowhere.
For the quarter ending in December, net income was off $300 million from the previous quarter, and was barely half what was reported in July. Assets dropped. Share count rose. And the price-to-earnings ratio has simply drifted upward from close to 10 to a nearly market-matching 17.
“We” Still Love Bank of America
Our James Hargett thinks BAC common shares can rise another 15%, to $30, this year, following recent analyst upgrades and in anticipation of another rate hike from the Federal Reserve which would let it hike its prices on loans. Our Nicholas Chahine suggests buying options to capture the coming gains, taking advantage of the stock’s technical chart.
In his widely anticipated annual letter, Buffett suggests he may convert preferred stock he bought in 2011 into common stock through a warrant, which he can do by 2021, assuming the annual dividend rises to just 11 cents per share. He praised BofA’s stock buyback program, which cut the share count from 10.38 billion to 10.05 billion during 2016.
Analysts are so pleased with the stock’s performance that they’re not even noticing the 25% raise given CEO Brian Moynihan, who got his job during the last financial crisis.
The Secret Weapon Is Technology
Still, the stock’s gains, and higher management pay, have piled on pressure to expand earnings. Here, Bank of America has a secret weapon in hand: technology.