Why Bank of America Corp Stock Is Not Inspiring Investors to Buy or Sell

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Bank of America Corp (NYSE:BAC) continues to slowly improve. With the financial crisis of 2007-09 long behind it, the Charlotte-based company saw buyer interest in BofA stock after the presidential election. The hopes of higher interest rates and a lighter regulatory burden likely drove BAC stock higher. Despite the recent stock rally, the bank can be described in one word—average. Given the lack of major news and its solid but mediocre financials, BAC stock has become a hold.

Market Conditions Are Mildly Optimistic

Few assert Bank of America stock is suitable for anyone besides conservative investors. In an industry such as banking, no news is good news. Because banks hold money, so much of their business depends on reputation. Hence, it pays to be boring and to avoid scandals such as the one that affected Wells Fargo & Co (NYSE:WFC) last year. In contrast, BofA stock has risen over 60% in the last 12 months.

Despite the increase, post-election hopes have only partially materialized. Short-term interest rates have steadily gone up. However, long-term interest rates have changed little over the last year. On the regulatory front, many rules have been rescinded. Still, no major legislation such as a repeal or a reform of Dodd-Frank has yet occurred.

Other than the recent stock price increases, the lack of BAC news is the best thing to happen to the stock. For BofA stock, the price to earnings (PE) ratio stands at about 15, the price to book (PB) ratio rose above one this year, and now the stock trades at above 1.1 times earnings.

Metrics at this level would have investors buying Amazon.com, Inc. (NASDAQ:AMZN) or even an older company such as Microsoft Corporation (NASDAQ:MSFT) with every available dime. Unfortunately for investors of BAC stock, they own shares in a bank. With the recent increase in the BAC stock price, metrics such as PE or PB ratios are near industry averages. Even when compared with its main competitors Citigroup Inc (NYSE:C) and JPMorgan Chase & Co. (NYSE:JPM), the stock also appears average.

BAC Stock’s Dividend Continues to Recover

The BAC dividend continues to follow the road to recovery after nearly being eliminated by the fallout of last decade’s financial crisis. BofA stock once paid a dividend of $2.24 per share. That dividend fell to 4 cents per share and remained at that level for several years.

Since 2014, the dividend has held to a trend of steady increases. The latest dividend increase in August took the dividend from 30 cents per share to 48 cents, a 60% increase. As a result, investors are now earning a dividend yield of just under 2%. Although other major banks have followed this same pattern, the BAC dividend yield is currently higher than that of Citigroup and JPMorgan.

BAC Stock Financials Are Mildly Positive

The company has also built a history of beating forecasts. The latest BAC earnings report released on October 13th showed the company earning 48 cents per share, beating estimates by 3 cents. Year-over-year earnings rose 13% this year on higher short-term interest rates. However, the five-year growth rate has been a modest 1.7%. For the same period, revenue increased 1%. However, the five-year revenue growth rate has averaged about -2.2%.

The financial metrics and the news on BAC stock make the shares a hold. If investors need to buy a sizable U.S.-based bank that’s free of negative press, BofA stock would be the choice. Other events such as a steady increase in long-term interest rates or major regulatory reform could also increase BAC stock’s value.

However, outside of the 60% dividend increase, its other financial metrics are decidedly average. If the market experiences a large drop in stock prices that is not directly related to Bank of America or the banking sector, investors should buy BAC. Otherwise, investors should simply stay put regardless of whether they own BAC stock.

As of this writing, Will Healy did not hold a position in any of the aforementioned stocks.

 


Article printed from InvestorPlace Media, https://investorplace.com/2017/10/bank-of-america-corp-bac-stock-not-inspiring/.

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