Bank of America
Bank of America (BAC) reported impressive fourth-quarter results on January 16. Analysts expect the bank to sustain the momentum in 2019. The December rate hike and growth in loans and deposits are expected to drive Bank of America’s revenues in the first quarter. Even in the absence of a rate hike in 2019, Bank of America is positioned to expand its loan portfolio and drive the deposit growth. The bank has value offerings for depositors including rewards, the convenience of banking through technology, and safety.
Bank of America’s Consumer Banking segment’s revenues are expected to benefit from the higher net interest income. Increased card income could support the non-interest income. Higher asset management fees and the increased net interest income could drive the Global Wealth and Investment Management segment.
The operating leverage, driven by efficient cost management and improved asset quality, is expected to support the bottom-line growth. Bank of America’s overall credit quality remains strong with the decline in net charge-offs. At the end of the fourth quarter, Bank of America’s net charge-off ratio improved to 0.39%—down from 0.53% in the same quarter the previous year. In 2018, Bank of America’s efficiency ratio improved to 59%—compared to 62% in 2017.
Analysts expect Bank of America’s revenues to improve 2.7% in 2019 due to the higher net interest income, loans, and deposits. The EPS is projected to mark high-single-digit growth due to the increased net interest income, operating leverage, improved asset quality, and share repurchases.
Bank of America stock is trading at a forward PE ratio of 10.2x, which looks attractive given the expected EPS growth rate of 9.5% in 2019 and a dividend yield of 2.1%.
Among the 30 analysts covering Bank of America stock, 21 recommended a “buy,” while nine recommended a “hold.” Analysts have a consensus target price of $32.52 per share, which implies an upside of 11% based on its closing price of $29.30 on January 18. Besides Bank of America, analysts have a positive outlook on Citigroup (C), JPMorgan Chase (JPM), and Wells Fargo (WFC) stock. Analysts maintained a neutral outlook on Goldman Sachs (GS).