JPM - Bank of America: Wait For A Better Price

2024-05-03 08:12:52 ET

Summary

• Bank of America's Q1 2024 results showed negative revenue growth and a decline in net income.
• The decline in revenues was due to drops in consumer banking and global banking segments.
• Despite the decline in revenues, BAC is managing its capital and risks adequately, though one of its main peers is doing it better.
• There are headwinds to face in the near future as more regulations might be implemented, and high-interest rates might be kept longer than expected. I rate the stock as a hold.

I rate Bank of America (BAC) as a hold, as the stock is not trading at an attractive price now; I developed my bullish case in my last article in November 2023, when the stock price was trading at around $29 per share. In that article, I noticed that the stock price was attractive as the market was concerned about the deterioration of the held-to-maturity (HTM) assets given the interest rate hikes; in 2022, those assets represented 20% of the total assets, and in 2023, those assets represented 18.75% . That improvement is combined with the Fed's policy, which does not consider further interest rate hikes, though it plans to keep them at high levels for a longer period than expected. Nevertheless, even when I consider that the stock is not so expensive, it is not cheap either, so I would wait for a drop to start a new position. For current investors, it's a clear hold, and I will provide more information to support my thesis, considering the quality of the balance sheet, the intrinsic value, and a risk comparison with BAC's main peers in terms of risk management and performance.

Context

The Q1 2024 results showed that BAC had a negative revenue growth of 2% YoY as of March 2024, whereas net income experienced a decline as well of 18.15%. I prefer to see the YoY comparison rather than the evolution of BAC quarter by quarter, in which BAC has shown an improvement in revenues and net income....

For further details see: