Bank Of America: Worth The Wait

Oct. 20, 2020 6:14 AM ETBank of America Corporation (BAC)25 Comments
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WG Investment Research


  • Bank of America's stock has significantly underperformed the broader market so far in 2020.
  • The bank reported Q3 2020 results that were not well-received by the market. However, I believe that investors will be rewarded for holding onto their BAC shares.
  • I'm long Bank of America, and I have no plans to reduce my stake in the near future.

Bank of America's (NYSE:BAC) stock has been under pressure since the company reported Q3 2020 results, which only adds to the already disappointing YTD stock performance.

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The Q3 2020 operating results were not well-received by the market due to several reasons but, in my opinion, the bank's long-term investment thesis remains intact. Therefore, I think that investors with a time horizon longer than a year or two should seriously consider staying the course with their BAC position. I believe the long-term performance of BAC shares will make holding onto the stock through this environment worth the wait.

The Latest, The Report That Failed To Impress

On October 14, 2020, BofA reported Q3 2020 results that beat on the bottom line but that missed the top-line estimate. The bank reported Q3 2020 EPS of $0.51 (beat by $0.01) on revenue of $20.3B (missed by $580mm), which compares unfavorably to the year-ago quarter.

Source: Q3 2020 Earnings Slides

The highlights:

  • Revenue declined by $2.5B (or 11%) YoY, driven largely by lower net interest income.
  • Net income was lower by $0.05 (or 9%) YoY, driven by a higher provision for loan losses (along with other COVID-related expenses).
  • The provision expense was $1.4B, which is a significant improvement from the previous two quarters ($4.7B and $5.1B in Q1 2020 and Q2 2020, respectively).
  • Net interest income declined by $2.1B (or 17%), which is a direct result of the low interest rate environment.

The operating results were largely a mixed bag but investors are currently focusing on two major themes/topics: (1) the potential fallout caused by the global healthcare crisis and (2) the impact of the low interest rate environment. Both are definitely significant risk factors for the bank.

The Potential Fallout

BofA and the other large financial institutions have indeed

ChartData by YCharts

ChartData by YCharts

This article was written by

WG Investment Research profile picture
Our President and CIO is a CPA with experience in public accounting and the financial services industry. He earned his Master of Accountancy degree in 2008 and his B.S. in Business Management in 2007. He is also a Level III CFA candidate. He has been intrigued by the market from the start. Over the years, he has learned that long-term investing is a discipline that, if followed, will help contribute to building lasting wealth. As such, most of our articles will be about the investments that we plan to hold for at least 3 to 5 years, as long as the company's story does not change. As a Seeking Alpha contributor, our main goal is to write about the companies that are key to our portfolio with the hope of promoting discussion (for or against the investment) from others within the SA community.Please visit our website for more information about W.G. Investment Research LLC.

Disclosure: I am/we are long BAC, C. 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.

Additional disclosure: Disclaimer: This article is not a recommendation to buy or sell any stock mentioned. These are only my personal opinions. Every investor must do his/her own due diligence before making any investment decision.

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