Bank of America Stock To Pay 17% Higher Dividend From Q3

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[07/06/2021] [Updated] Update from Bank of America Bank of America’s stock (NYSE: BAC) has risen 37 percent year to date, and its current price of $42 a share is the same as its fair value of $42, according to Trefis’ valuation estimate. On June 28, the bank announced that it had completed the Federal Reserve’s Comprehensive Capital Analysis and Review (“CCAR”) stress test process for the year 2021. The Fed conducts this exercise every year to assess the capital sufficiency of large banks in the United States in order to ensure that they can continue to operate during times of financial stress. Last year, the Fed imposed some restrictions on dividend and share repurchases, but this time it gave the green light to all 23 financial firms taking part in the test. As a result, for the third quarter of 2021, Bank of America proposes to enhance its common stock dividend by 17 percent to $0.21 per share (subject to approval by the Board of Directors). This comes on top of the bank’s big $25 billion share repurchase programme announced in April.
In 2020, the company’s revenues fell 6% year over year, bringing the total to $85.5 billion. While the bank’s sales and trading and investment banking divisions grew strongly, the growth was more than offset by an 11 percent drop in net interest income year over year, as it was for all of its peers. Due to interest rate headwinds and decreased new loan issuance, the NII, which accounts for more than half of overall revenues, was down. The same pattern persisted in the first quarter of 2021, with the bank reporting solid growth in investment banking and sales & trading, but a 16 percent reduction in net interest income year over year. We expect the NII to rebound in the future, owing to increased loan balances, although interest rates are expected to remain below the Covid-19 levels for some years. Furthermore, an increase in Assets under Management is expected to drive growth in the wealth management market (AuM). However, when the economy improves, sales and trade and investment banking revenues are projected to return to normal in the coming months. Overall, the aforementioned variables are expected to push Bank of America’s revenue to $88.7 billion in FY2021. Furthermore, the bank’s profitability numbers are expected to improve this year due to a favorable decline in its credit loss provisions – the bank increased its provisions last year to compensate for the increased risk of loan defaults. This would likely result in an EPS of $2.82, resulting in a valuation of $42 based on a P/E ratio of little under 15x.
[Updated on May 20, 2021] The stock of Bank of America is well valued.
Bank of America’s stock (NYSE: BAC) has risen more than 125 percent since its March 23 lows last year, and its current price of $42 a share is equal to its fair value of $42, according to Trefis’ valuation estimate. Furthermore, due to the passage of stimulus packages, expanded Covid-19 vaccination programs, and the Fed’s decision to retain near-zero rates, U.S. bank stocks have enjoyed a robust run in 2021, as evidenced by the benchmark Dow Jones U.S. Banks Index (up 33 percent YTD). Bank of America’s stock has grown 38 percent year to far, which is in line with the trend.
Bank of America just reported its first-quarter FY2021 results, with revenues and earnings exceeding consensus projections. It recorded overall revenues of $22.8 billion, a little increase over the previous year. This can be ascribed to a 10% increase in sales and trading revenues and a 62 percent increase in investment banking revenues – equity underwriting revenue climbed from $283 million to $900 million in the quarter, owing to higher equity issuance deals. However, this increase was substantially offset by a 12% reduction in the consumer banking division, which accounts for about 40% of overall revenue. Because of lower interest rates, the bank’s net interest revenue for the quarter fell by 16 percent year over year. The bank’s adjusted net income of $7.6 billion climbed 113 percent year over year, owing to a considerable reduction in credit loss provisions – BAC released $2.7 billion in loan loss reserves in the quarter.
The corporation recorded $85.5 billion in revenue for the entire year of 2020, down 6% from the previous year. While the company’s sales and trading and investment banking businesses saw strong growth this year, thanks to higher trading volumes and underwriting deal volumes, the positive effect was more than offset by a drop in its consumer banking, global banking, and wealth & investment management divisions. The drop was mostly attributable to lower net interest revenue, which was down 11% year over year due to the lower interest rate environment, as well as a reduction in new loan issuance. However, due to a rebound in consumer expenditure, we predict outstanding loan balances to improve slightly in FY2021. Low interest rates, on the other hand, are here to stay for a while longer. Furthermore, wealth management Assets under Management (AuM) are expected to continue growing in FY2021, with AuM rising 10% y-o-y to $1.4 trillion by the end of December 2020 and 4% sequentially to $1.47 trillion by the end of the first quarter. Notably, the greater trading and underwriting deal volumes are anticipated to last a few more months before returning to normal as the economy recovers. Overall, the aforementioned variables are expected to push Bank of America’s revenue to $88.7 billion in FY2021. In addition, the bank’s profitability worsened in 2020 as a result of a large increase in credit loss provisions from $3.6 billion to $11.3 billion. However, in recent quarters, the figure has decreased, indicating a decrease in the likelihood of its customers defaulting on their loans. Furthermore, we anticipate a favorable drop in provisions in the coming quarters as economic conditions improve. This would likely result in an EPS of $2.82, resulting in a valuation of $42 based on a P/E ratio of little under 15x.
ADDITIONAL INFORMATION [UPDATED 01/27/2021] The stock of Bank of America is unlikely to produce high returns.
Bank of America stock (NYSE: BAC) is still trading 11 percent behind its pre-Covid top in February 2020, despite a more than 70 percent increase since the March 23 lows of last year. Bank of America is valued at roughly $33 per share, according to Trefis, which is around 5% higher than the current market price. Bank of America is one of the two largest banks in the United States by total assets, with a huge loan portfolio of $315 billion in consumer banking and $382 billion in commercial banking loans as of 2020. As a result, it is extremely sensitive to interest rate changes. The bank’s recently reported fourth-quarter results reflected this, with sales missing consensus predictions while profitability beat expectations. The bank recorded overall revenues of $20.1 billion, down 10% from the previous year. Due to an increase in sales and trading revenues as well as investment banking fees, the Global Markets division expanded by 14% year over year. However, this increase was more than offset by a 13% decline in consumer banking and a 5% decline in global wealth and investment management. Because of lower interest rates, the bank’s net interest revenue for the quarter fell by 16 percent year over year.
For the entire year 2020, Bank of America reported revenue of $85.5 billion, down 6% year over year. Net interest income accounts for about half of the bank’s total revenue, but due to interest rate headwinds, net interest income fell by 11% year over year in 2020. However, the favorable rise in the Global Markets category (up 20% year over year) was largely offset by higher sales & trading and investment banking revenues. We predict core banking revenues to continue to decline in FY 2021 as a result of reduced interest rates brought on by the Federal Reserve’s zero-rate policy in response to the Covid-19 crisis. Furthermore, Global Markets revenues are likely to return to normal in the following months. This is expected to limit Bank of America’s revenue to roughly $85.1 billion in FY 2021, somewhat less than the number for 2020.
The bank’s net income for 2020 fell 37 percent year over year, owing mostly to greater credit loss provisions. This resulted in an EPS of $1.87, down 32% from the previous year’s number. The Covid-19 crisis and economic recession had a detrimental influence on businesses and people’ ability to repay loans, causing the bank to put up provisions for credit losses. However, in the fourth quarter of 2020, it released part of its credit loss reserves in response to a resurgence in consumer spending and loan demand from business customers, reflecting an improvement in their financial situation. We estimate the same trend to continue in the next quarters, resulting in a $2.40 EPS for the bank in FY2021. In addition, the bank’s share repurchase program is expected to begin in the first quarter of 2021. Overall, a valuation of roughly $33 is expected based on the $2.40 EPS and a P/E multiple of slightly under 14x.
[11/13/2020] [Updated] Bank of America’s stock is down 25% year to date due to low interest rates.
Despite a 50 percent rise since the bottom in March, Bank of America stock (NYSE: BAC) is still down 26% year to date. Bank of America is valued at roughly $29 per share, according to Trefis, which is around 10% higher than the current market price. The financial behemoth is one of the largest banks in the United States in terms of total assets, and it is extremely sensitive to interest rate swings. Bank of America reported total sales of $20.34 billion in the third quarter, which were 11% lower than the year-ago quarter and underperformed revenue consensus projections./nRead More