Bank Of America Taking Lumps But Stock Remains Strong

| About: Bank of (BAC)

The early September big announcement from the Dow Index was excellent news for Goldman Sachs (NYSE:GS), Nike (NYSE:NKE) and Visa (NYSE:V).

These companies were asked to join an elite roster of publicly traded 'blue chip' companies. Though each company weathered ups and downs recently, especially Goldman Sachs, which, five years ago, was deemed "too big to fail," their current performance, future outlook and high value appealed to Dow Jones officials.

These additions also meant that three companies were removed: the once-strong technology company Hewlett-Packard (NYSE:HPQ), the once-dominant aluminum producer Alcoa (NYSE:AA), and Bank of America (NYSE:BAC), one of the country's four largest banking and financial services providers.

Bank of America has been working its way back from its own role in the subprime mortgage crisis, which included acquiring the assets of Countrywide Financial and investment provider Merrill Lynch. In hindsight, the $50 billion Merrill Lynch deal may have saved a longtime investment firm, but the $2 billion Countrywide purchase has been declared one of the "worst deals in history" by the Wall Street Journal.

The recent de-listing didn't immediately hurt Bank of America, but may gradually erode investor confidence. In the last year, share prices have grown a nice 24.72 percent, from a low of $8.93 September 2012 to nearly $15 in August 2013. The price only dropped a few cents after the the index removal announcement was made.

Today, the 284-year-old bank based in Charlotte, N.C., maintains $57.47 billion in operating cash flow and $489.90 billion in total cash. Revenue is $78.11 billion and revenue per share is $7.24.

Its recent role as one of the biggest financial players has been mixed.

It drew many consumer complaints three years ago when it announced plans to start charging for customer debit card use, a move that it later reversed.

But an Investopedia analysis of the company in July 2013 was downright complimentary describing its 1st and 2nd quarter performance with words like "significantly underestimated" and "legitimately praiseworthy." At the time, the company had trimmed costs by 7 percent while seeing 75 percent annual stock growth and 20 percent growth for the previous quarter.

However, the article did say that Wall Street still perceived its recent performance as slow, since operating revenue and net interest income had dipped slightly. Fees from service charges were up, but mortgage income dipped, and when compared side-to-side with JPMorgan (NYSE:JPM) and Citigroup (NYSE:C), Bank Of America definitely brought up the rear.

Analysts are curious whether Bank Of America's price will slide when it is actually removed from the index this fall or if it will keep performing well.

Forbes said being taken off this index can hurt a company, sometimes badly or permanently. However, some de-listed companies turn around after some internal restructuring or government support, such as General Motors (NYSE:GM), which was removed in 2009. Others, like Kodak (EKDKQ.PK) and Sears (NASDAQ:SHLD), which were also removed, haven't recovered financially.

Other factors that could influence future growth or trigger a decline.

Settlement talks. The U.S. Justice Department is suing Bank of America and 20 other investors because of actions during the mortgage crisis that led to $108 billion in security losses. Discussions are taking place in New York Supreme Court, and Bank of America has proposed an $8.5 billion settlement. Though this would hurt the company's balance sheet, it would clean up some of the damage to the company's reputation.

Russian expansion. speculates that Bank Of America may be looking toward establishing itself more in Russian lending markets. Though it trimmed its Moscow operations last year, some analysts are reporting that it is beginning to court experts in this sector.

Confidence from the top: CEO Brian Moynihan told the Los Angeles Times at the end of August 2013 that he enjoys providing critics wrong, and has done so repeatedly. After the company was in shaky straits five years ago, Moynihan began shutting down offices and cutting other costs to make the company leaner. Now, he's optimistic about what's ahead.

Overall, Bank of America's current condition presents an interesting challenge for investors. On the one hand, it has a strong track record of solid growth and stock performance, especially recently. Moynihan has pushed a leaner, but not necessarily meaner, philosophy, trying to distance the company from the 'too big to care' institutional feeling of his predecessors.

But on the other hand, investors still remember past performance, and not enough time may have passed from the rough waters of the last few years to start counting on Bank of America solidly again. Recent growth has been positive, which is exciting for those in for the long-haul. Unfortunately those burned by past bad decisions may want to wait and see for another few quarters.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.