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Bank Of America Is Not A Compelling Value

Mar. 09, 2021 5:33 AM ETBank of America Corporation (BAC)42 Comments
Geoff Considine profile picture
Geoff Considine


  • Bank of America stock has delivered very high returns over the past 5 years.
  • The current stock price is slightly above the Wall Street consensus 12-month price target.
  • The option-implied outlook for BAC is moderately bearish.
  • The stock has a lot of good news priced in.
  • My final overall rating is neutral.

Bank of America (NYSE:BAC) stock has gained 173% in five years, with annualized total return 23.95% per year. Contrast this to Citigroup’s (C) 12.61% per year over the same period. The question for investors, of course, is whether the stock price has gotten too far ahead of implied earnings so that the stock is overvalued. Citigroup has a forward P/E of 10.6 and a yield of 2.9%, as compared to BAC’s 15.2 forward P/E and 1.95% yield. I recently analyzed Citigroup so I wanted to go through the same process for BAC.

Price chart and basic stats for BAC (Source: Seeking Alpha)

Over the past 3-, 5-, and 10-year periods, BAC’s price returns have far exceeded its sector, Diversified Banks. On one hand, this is a great vote of confidence in expected future earnings. On the other hand, it means that more projected success is priced in.

Trailing returns for BAC vs. Diversified Bank sector and U.S. equity market (Source: Morningstar)

Wall Street Analyst Outlook

While the consensus opinion of the 15 ranked analysts surveyed by eTrade is bullish, the current stock price is higher than the 12-month consensus price target. The stock price already reflects much, if not all, of the expectations that resulted in the analysts’ bullish view.

Wall Street analyst consensus rating and 12-month price target for BAC (Source: eTrade)

The consensus calculated by Seeking Alpha, using a group of 27 Wall Street analysts, is almost identical to the price target calculated by eTrade. It is notable that there is only one bearish analyst and one who is very bearish from among this group of 27.

Wall Street analyst consensus and price target for BAC (Source: Seeking Alpha)

Outlook from the Options Market

Another way to generate an outlook for a stock is to analyze the prices

This article was written by

Geoff Considine profile picture
Geoff has worked in quantitative finance for more than twenty years. Before entering finance, Geoff was a research scientist for NASA. Geoff holds a PhD in Atmospheric Science from the University of Colorado - Boulder and a BS in Physics from Georgia Tech. Neither Geoff Considine nor Quantext (Geoff's company) are investment advisors. Nothing in any commentary here on Seeking Alpha or elsewhere shall be regarded as advice.

Analyst’s Disclosure: I am/we are long 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.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (42)

I bought right after the lock downs started last year....so I am happy with the returns on this go around. I also made money on it in the wake of the 2008 meltdown....although I had to hold for quite a while to get really good returns. I plan to hold BAC for the foreseeable future.
David Crosetti profile picture
The two best managed large banks are (JPM) and (BAC).
Decision to extend Exclusion of treasuries from SLR - supplementary leverage ratio calculation is due from the FED before the end of this month. This frees up liquidity at the banks to lend more to commercial banking...does anyone know if JPowell spoke about it in his update yesterday? Need to check
Yes. I hold bank stocks for dividends...USB and TFC are yielding 3% which itself is not much when treasury yields are starting to spike...why should I pay a premium to buy BAC/C/JPM/WFC - the big 4 are overvalued right now.

Just curious. The current dividend yield on BAC is about 1.9 percent. (I’ll assume you bought BAC cheaper so your div yield is probably higher.) I know you said you hold bank stocks for the dividend. But how do you not mention that BAC is up over 70 percent over the last 52 weeks and up about 28.5 percent YTD?
donio profile picture
@D.Rapp it's only mean they are expensive right now, after 28.5 YTD
Forcing the elderly to the ground for not having their mask on, one day after the mask mandate was lifted in Texas, in a branch of yours by your employee? And being stupid enough to do it on camera so the world could watch him do it while she screamed? Who does BAC think they are? Wells Fargo? No thanks, she’ll probably sue for millions. And if I were on that jury, she would get it.
ColorTrader profile picture
@kata get your facts straight before you post misinformation
1) it was NOT a BAC employee who handcuffed this woman but a police officer who repeatedly told her to wear a mask as to BAC branch office policy (regardless if Texas lifted it mask mandate)
2) the bank has a legal right to serve customers as to warranting safe practices to conduct their business
3) the woman claimed the policeman harmed her while customers, who saw this event, said no he did not

Google to get the full video and news coverage for yourselves to get the true factual account

I watched the video and saw what I saw. And you contradict yourself. Was it a Police Officer acting in his official capacity as a Police Officer of the City or State or was he acting on behalf of the Bank enforcing their legal rights to their safe practices? Either he was representing the State incorrectly and abusively as the mandate had been already rescinded or he was in the employ of the Bank enforcing their rules and manhandling that old lady in their name.

And in either case, the physically abusive way he conducted himself was uncalled for, unnecessary and inflicted harm on that elderly woman. It also engendered fear and disrespect in the customers of the Bank and in anyone who happened to view that video if they are being honest, which I do not believe you are.
ColorTrader profile picture
@kata You obviously don’t know the law in this situation. An institution that conducts business has a legal right to identify its policies in order to ensure the safety and protection of conducting its business and customer interactions. Since this person refused to honor these policies they (institutions) have a right to refuse to conduct business with her. When she refused (several times) she was told to leave and did not and caused a public disruption at the institution. This now can be seen as a person who is trespassing and displaying subsequent public disorderly conduct. The policeman, regardless if contracted by the bank, still has the same rights and powers as an on-duty officer to uphold the law.

Again Google it and get your facts before commenting.
11 Mar. 2021
OI!! Slice it like this, BAC current value (number of shares, earnings, assets, etc etc) is about 1/3 of JPM (...) BAC future value (5 yrs tops) is half of JPM.
Rise in interested rates will skyrocket the BAC. Most of the analysts' earnings estimates are too low. They are behind the ball. Get in while the stock is still cheap. Why is this Warren's Buffets 2nd biggest holding?
donio profile picture
@Private Hedge Fund Manager buffet looking very long term as this is a very good company, hold is a good option, but it doesn't mean it cheap
donio profile picture
p/b of 1.21 is not cheap, even if the bank created better ROTCE than others, the gap in valuation is too big. the dividend is low 1.93 percent is not good value, and all the people that so happy about the buyback and p/e influence- its true that buyback is a good things as policy and show the company managment believe the company. and still your share after a buyback is bigger(better p.e), but you control a company with less cash. so it doesnt mean its cheaper.

if you calulate cash flow, p/b ect, BAC is a good company but expansive one.
donio profile picture
Why the quant is so positive?
brightlake profile picture
@donio BAC is the bank with the most sensitivity to interest rate: 100bps parallel increase in rates will bring about additional revenue of 12B. The long end has already increased 100bps.
PauloCostaSilva profile picture
If $BAC ain't it ( on the bank side stocks ) what is !?
Obviously LONG AF !!
@PauloCostaSilva , AX, INBK
donio profile picture
@LukkiC Why?
Elephinooo profile picture
How can you write a whole article on valuation and never mention, cash flows, earnings or enterprise value?
jakeelwood5 profile picture
BAC is an extremist left leaning company that will underperform over the next 5 years, because it is making decisions based on fantasy.
They helped the 2008 crash by giving credit cards to illegals.
I’ll side with the bullish crowd with this money printing giant looking to substantially reduce PE with significant and opportunistic buy-backs plus overdue dividend increases. After not having the balls to jump in at 2.50 I woke up two weeks later and pulled the trigger at 5.00. I will stick with BAC and the inevitable bumps as we go forward. Don’t discount their early investment in the digital banking world.
myhome profile picture
@Winoheel 1947 Good for you. I started 18-23 last spring and summer. I have a long term hold on this and would not be surprised at all to see it at 50 by years end or early 22
Chancer profile picture

$50 is definitely better than $40. But I am not sure BAC will get there that soon.
stevecalifornia profile picture
@Winoheel 1947 I had the same experience regarding $2.50 and $5.00. Glad I jumped in when I did. Hope today your enjoying your gains.
I started buying BAC when it was $20. I think I'll just hold for awhile.
dividend raise?
Chancer profile picture

Not likely from Moynihan.
@Clubhouse@ Once they buy back half their shares
@sniper97 - raise is coming in june..
ColorTrader profile picture
Buybacks and dividend increases make this a compelling long-term hold. If inflation and yields move higher it can only benefit BAC as the economy heats up. C has been a neutral stock for over a decade now with no strong mobile or tech innovations as compared to BAC.
Options market- crap analysis. Watch and learn quiz kid. Going to $40 easily this year.
I used a basic DDM accounting for the record share buyback (once authorized) and came up with a $38 - $42 share price. Since the RFR has jumped I think BAC is trading around FV. I bought calls in the low thirties , sold to close, and moved over to Citgroup 75 LEAPs and DB $15 LEAPs. I like the risk/reward profile on those banks based on restructure/recovery/book value/ and lending spreads. Gonna agree with your PT here.
Chancer profile picture

IMO, $40 is reasonable and the sooner the better.
Since when we care about value when we used to promote $TSLA as a BUY at $900?
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