The growth of Bank of America (NYSE:BAC) depends on the responsible investment of depositors’ funds, which is crucial during these uncertain times. I am bullish on BAC stock because customers are switching to well-known names like Bank of America, which actually grew its income and client base while some other banks were collapsing.
By now, you’ve probably heard all about the famous failures of SVB Financial and Signature Bank. You may have read about bank runs, which took the form of long lines at ATMs and customers on their smartphones frantically trying to withdraw their funds. Yet, while less reputable banks experienced swift outflows, Bank of America held steady and even gained some customers who sought safety amid the chaos.
With the still-fresh release of Bank of America’s first-quarter 2022 results, there’s now irrefutable evidence that the company is on solid footing. Granted, the market reacted to Bank of America’s results by selling BAC stock at first. However, I believe that this is the wrong response, and the tide of sentiment – which can be irrational in the short term – should eventually turn in Bank of America’s favor.
Bank of America Emphasizes Responsible Growth
Alastair Borthwick, Bank of America’s chief financial officer, made sure to point out that his company’s strong quarterly results were based on the “value of responsible growth.” This is a great point because the collapse of SVB Financial and Signature Bank, as well as cryptocurrency exchange FTX, reminded customers and investors that trust is extremely important in the financial sector.
Under normal circumstances, Borthwick probably wouldn’t have placed much emphasis on Bank of America’s liquidity position. Yet, 2023 is anything but normal, and investors will surely want to know whether Bank of America has sufficient access to capital to weather this year’s banking crisis.
Borthwick responded definitively to this concern, stating that Bank of America “maintained strong liquidity, ending the quarter with $904 billion of Global Liquidity Sources.” Moreover, the bank’s regulatory capital “improved to $184 billion,” with its CET1 ratio (a liquidity measure) being almost one percentage point above the current minimum requirements.
Again, the focus isn’t growth at any cost but only responsible growth. BAC stock is truly a “steady Eddie” kind of asset, and Bank of America is a relatively safe financial institution to consider investing in. The company is a consistent dividend grower that offers a 2.95% forward annual dividend yield, which beats the sector average of 2.114%.
Furthermore, Bank of America shares aren’t outrageously priced as the stock basically trades at book value with a trailing 12-month price-to-book (P/B) ratio of around 1.0x, not too far from the sector median P/B ratio of 1.06x.
You Can Ignore the Market’s Response to BAC’s Earnings
If short-term traders continue to be bearish on BAC stock, you can choose to ignore the sentiment and even take a contrarian trade. There seems to be nothing objectionable about Bank of America’s Q1-2023 results. If anything, the data only indicates resilience during a challenging time for the banking sector.
Here’s the lowdown. Bank of America reported $26.3 billion in quarterly revenue (net of interest expense), up 13% year-over-year and ahead of the consensus analyst estimate of $25.2 billion. Turning to the bottom line, Bank of America’s net income increased by 15% year-over-year to $8.2 billion, which equates to $0.94 per diluted share. This result easily beat Wall Street’s forecast of $0.81 per share and is Bank of America’s third consecutive quarterly EPS beat.
Here’s what really impressed me, though. During 2023’s first quarter, Bank of America added 130,000 net new consumer checking accounts; this represents the company’s 17th consecutive quarter of growth in that area. Also, Bank of America recorded 3.8 million Small Business checking accounts, up 5% year-over-year, as well as 3.6 million consumer investment accounts, up 9%. Thus, while customers might flee less reputable banks, clearly, they’re content to park their capital with Bank of America.
Is BAC Stock a Buy, According to Analysts?
Turning to Wall Street, BAC comes in as a Moderate Buy based on six Buys, five Holds, and one Sell rating. Further, the average Bank of America stock price target is $35.85, implying 18% upside potential.
Conclusion: Should You Consider BAC Stock?
As you can see, many clients view Bank of America as a bastion of safety during times of crisis. Perhaps there’s a silver lining in the collapse of some questionable banks this year, as it’s a reminder that being a “steady Eddie” company is actually a good thing.
It’s baffling and frustrating that short-term traders initially dumped their Bank of America shares in response to the company’s perfectly acceptable quarterly results. So, consider taking advantage of this responsible growth-and-value opportunity.