Bank of America Corp (BAC) Stock Still Has 20% Upside

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BAC stock - Bank of America Corp (BAC) Stock Still Has 20% Upside

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Earlier this year, I predicted Bank of America Corporation (NYSE:BAC) would sustain its momentum, sending shares to the $28 level. The problem? Fears that the so-called “Trump Bump” has ended have held back BAC stock … and the rest of the market.

But today, I’m reiterating that previous bullish call.

BofA, which currently trades around $23 per share, has improved by just 5% this year to trail the S&P 500’s 7% gains. That underperformance has been powered by a 5.5% dip in BAC stock during the past three months, owing to a combination of factors, including fears that President Trump’s pro-growth policies and tax reform plans won’t materialize, thanks to what some analysts consider ongoing turmoil within the administration.

Those fears, however, are terribly short-sighted.

Reasons to Love Bank of Ameica

Against this backdrop of uncertainty, the market has sent the KBW Nasdaq Bank Index (INDEXNASDAQ:BKX) lower by 6% in three months. But while investors have also locked in profits in names such as JPMorgan Chase & Co. (NYSE:JPM), Citigroup Inc (NYSE:C) and Wells Fargo & Co (NYSE:WFC), BofA remains the best way to play the temporary hiccup.

The degree to which Bank of America CEO Brian Moynihan has moved the bank beyond its legacy issues is one reason. But last week, BAC also received a strong endorsement from one the world’s top money managers.

In a recent 13F filing with the Securities and Exchange Commission, investors learned that billionaire David Tepper and his hedge fund, Appaloosa Management, acquired more than $207 million in Bank of America stock during the first quarter.

And here’s the thing: Aside from the massive investment in dollar terms, the fact that Tepper bought shares during the first quarter means he bought BAC stock at or around its 52-week high. The shares hit their 52-week high of $25.80 in March.

Bank of America Corp (BAC) stock chart

And from an operational perspective, BofA — which beat Wall Street’s Q1 EPS estimates by 6 cents, won’t let Tepper down. First quarter revenue of $22.2 billion rose almost 7% year over year and topped Street forecast by some $600 million. Plus, when it comes to its business segments that matter the most, Bank of America is showing no signs of weakness, given that net income of $4.9 billion surged 40% year-over-year.

On the call with analysts, CEO Brian Moynihan said:

This quarter, we produced strong revenue growth; we drove cost savings that offset higher revenue related cost; and we managed risk well; and we returned more capital to you, our shareholders, through dividends and increased repurchased shares than any period since the crisis.”

Why are these metrics important?

For starters, Bank of America achieved these results organically without any external catalysts from Washington. Just imagine what it can deliver once infrastructure spending kicks in and Dodd-Frank is scaled back or repealed.

Trump’s ability to deregulate banks and free them from the many regulatory handcuffs that impede banking revenues should propel Bank of America’s earnings much higher in the quarters and years ahead.

These are things that billionaire investor Warren Buffett — CEO of Berkshire Hathaway Inc. (NYSE:BRK.A, NYSE:BRK.B), who continues to bet big on BAC — seems to understand.

What’s more, not only is BofA actively buying back its own stock, but higher future earnings could also translate to higher dividends, too.

Bottom Line on BAC Stock

Bank of America opened Monday’s trade at $23.19. Thanks to the recent recent pullback, shares are now priced at just 10.7 times fiscal 2018 earnings estimates of $2.15 per share. This is compared to a forward P/E of 19 for the S&P 500 index, and suggests there’s still tons of value in Bank of America.

Listen. Let’s just be conservative about this and apply a mere 13 multiple to BAC stock. If you do that, Bank of America still is on track to reach $28 in the next 12 to 18 months.

That would be good for 20% returns.

As of this writing, Richard Saintvilus did not hold a position in any of the aforementioned securities.


Article printed from InvestorPlace Media, https://investorplace.com/2017/05/bank-of-america-corp-bac-stock-still-has-20-upside/.

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