Bank of America (NYSE:BAC) is the second-largest U.S. lender after JPMorgan, and offers consumer banking, credit cards, commercial banking, investment banking, sales & trading, and wealth management services. Bank of America’s earnings for the third quarter were released last week and the banking giant surpassed consensus estimates for revenue as well as earnings. Wealth management and Consumer Banking segments reported a year-on-year growth of 2% and 3% respectively while there was a 26% jump in investment banking revenues.
Trefis has a price estimate of $35 for Bank of America’s stock, which is 15% higher than its current market price. We have detailed the key components of Bank of America’s Valuation in an interactive dashboard, along with our forecast for the full year 2019. Additionally, you can see more Trefis data for financial companies here.
The stock price estimate can be divided into 4 factors: Stock Price = (Total revenue x Net income margin / No. of shares outstanding) x P/E Ratio
#1 Estimating Bank of America’s Revenues
- Bank of America is expected to report $91.2 billion in Total Revenues for 2019, which is slightly lower than 2018.
- Consumer Banking revenues are expected to increase by 2% y-o-y followed by similar growth in Corporate & Commercial Banking and Wealth Management segment, offset by a 57% decline in “All Other” segment.
- Notably, Sales & Trading revenues are expected to decline by 6% y-o-y in 2019 due to challenging market conditions.
Our interactive dashboard for Bank of America’s details what is driving changes in revenues of Bank of America’s individual revenue streams, along with our forecast for the next three years?
#2 Estimating Bank of America’s Net Income
- Bank of America is expected to have a Net Income of $25.1 billion in 2019 which is 6% less than previous year.
- This would be caused by decline in net income margin from 29.3% in 2018 to 27.5% in 2019, mainly driven by higher operating expenses and elevated loan provisions.
#3 Deriving Bank of America’s EPS Figure
- Bank of America has regularly invested in share repurchases to boost shareholder returns. Its share repurchase is likely to touch $27.8 billion for the full year 2019.
- This would enable it to report an EPS figure of $2.70 in 2019.
#4 Estimating Bank of America’s Share Price using P/E multiple
- We expect Bank of America to achieve earnings of $2.70, which coupled with our forward P/E multiple of 12.9x works out to a price estimate of $35.
- Details about how Bank of America’s P/E multiple compares with peers Citigroup, JPMorgan and Goldman Sachs is available in our interactive dashboard.
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