Bank of America Corporation

BAC Details

Redemption of Senior Notes: Bank of America Corporation (NYSE: BAC) is a leading financial institution, primarily involved in providing banking, investing, asset management and other financial and risk management products and services. As at 18 September 2020, BAC had a market capitalization of around $218.42 billion. On 1^st October 2020, BAC is planning to redeem all $750 million principal amount outstanding of its Floating Rate Senior Notes, due October 2021, and all $2,000 million principal amount outstanding senior notes (having 2.328% Fixed or Floating Rate), due October 2021. 

Q2FY20 Result Highlights: For the quarter ending 30 June 2020 or Q2 FY20, the Bank reported a net income of $3.5 billion, significantly lower if compared to the net income of $7.3 billion in pcp. This is mainly due to the inclusion of a $4.0 billion reserve build, primarily associated with a weaker economic outlook related to COVID-19. The total revenue, net of interest expense, stood at 22.3 billion in Q2 FY20, down by 3% on pcp, mainly due to an 11% decline in the net interest income offset by 5% growth in Non-interest income. Over the quarter, the Bank strengthened its balance sheet by increasing capital and liquidity and growing deposits. During the quarter, the Bank returned $1.6 billion of capital to shareholders via dividends.  The deposits increased by $282.7 billion, or 21%, to $1.7 trillion in Q2FY20. At the end of Q2FY20, BAC had Book value per common share of $27.96, up 6% on pcp. As at 30 June 2020, the Bank’s CET1 ratio stood at 11.4% and the Supplementary leverage ratio stood at 7.0%.

Q2FY20 Results Highlights (Source: Company Reports)

Outlook: Amid COVID-19 pandemic, the Bank is focused on generating returns while addressing societal needs. The Bank is cautiously optimistic about the outlook as client deposit gathering and investing activities continues to gain momentum while capital markets remain active. With its continued focus on ‘Responsible Growth’, the Bank seems to be well prepared for the current environment. The Bank is scheduled to conduct ‘Bank of America Global Research 25th Annual Financials CEO Virtual Conference’ on 24 September 2020. BAC’s CFO Paul Donofrio is going to participate in the conference. 

Valuation Methodology: Price to Book Value Multiple Based Relative Valuation (Illustrative)

Price to Book Value Multiple Based Relative Valuation (Source: Refinitiv, Thomson Reuters)

Note: All forecasted figures and peers have been taken from Thomson Reuters, NTM-Next Twelve Months 

Stock Recommendation: Over the last six months, the stock of BAC has provided a return of 28.16% and is trading slightly lower than the average of its 52-weeks price level band, therefore offering a decent opportunity for accumulation. On the technical analysis front, the stock has a support level of ~$23.56 and a resistance level of ~31.07. We have valued the stock using Price to Book multiple based illustrative relative valuation method and have arrived at a target price of lower double-digit upside (in % terms). For the purpose, we have taken peers like JPMorgan Chase & Co (NYSE: JPM), Goldman Sachs Group Inc (NYSE: GS), and Morgan Stanley (NYSE: MS), to name few. Considering the Bank’s healthy balance sheet, its growth prospects, valuation and current trading levels, we give a “Buy” recommendation on the stock at the closing price of $25.21, down by 0.55% on 18 September 2020.

BAC Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

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