Bank of America’s BAC shares performed well in 2024. The stock gained 30.5%, outperforming the S&P 500 Index and the Zacks Finance sector. On the other hand, the stock lagged its industry peers — Citigroup C and JPMorgan JPM.
2024 Price Performance
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Bank of America & Interest Rate Cuts
The Federal Reserve lowered the interest rates by 100 basis points since September. The fed fund rates are now in the 4.25-4.5% range. Also, the central bank hinted at two more rate cuts this year as inflation continues to be persistent.
Bank of America is a big beneficiary of lower interest rates. Being highly sensitive to interest rates, the company faces tremendous pressure on its net interest income (NII) because of soaring funding costs. During the pandemic, it piled up billions of dollars worth of long-dated Treasuries and mortgage bonds at low rates. The Fed’s aggressive raising of interest rates since early 2022 is hurting NII expansion.
Though its NII reached a trough in the second quarter of 2024 and rose in the third quarter, the growth will likely be uneven. Management expects NII to increase sequentially to $14.3 billion in the fourth quarter on the assumption of two rate cuts and a modest increase in both loans and deposits.
Net Interest Income
Image Source: Bank of America Corporation
BAC projects NII to keep growing in 2025 with some quarterly volatility as the Fed keeps lowering rates.
BAC’s Branch Expansion & Digital Initiatives
Bank of America’s aggressive branch expansion across the United States as part of a broader strategy to solidify customer relationships and tap into new markets will drive NII growth over time. The company announced plans to open more than 165 new financial centers by 2026-end. This new wave of expansion follows the branch network growth plans announced by Bank of America in June 2023. The plan focused on entering nine new markets, including Omaha, Boise and Milwaukee.
The bank's strategic investment in new financial centers and push into new markets reflect a broader industry shift toward optimizing branch networks to deepen customer relationships and tap into new business opportunities. In this competitive environment, the ability to blend digital convenience with in-person expertise is expected to give Bank of America long-term leverage in the evolving banking landscape.
BAC’s consumer mobile banking app now serves more than 47 million active users, and roughly 23 million consumers use Zelle, which has become a dominant way to move money.
Digital Adoption
Image Source: Bank of America Corporation
Almost 87% of BAC’s global banking clients are digitally active, and the company’s CashPro platform uses artificial intelligence (AI) to streamline service requests. BAC plans to continue strengthening its technology initiatives and spend heavily on these. These efforts help it attract and retain customers and boost cross-selling opportunities.
BAC’s Fortress Balance Sheet & Solid Liquidity
Bank of America’s liquidity profile remains solid. As of Sept. 30, 2024, average global liquidity sources were $947 billion. Also, the company’s investment-grade long-term credit ratings of A1, A- and AA- from Moody’s, S&P Global Ratings and Fitch Ratings, respectively, and a stable outlook allow easy access to the debt market.
BAC continues to reward shareholders handsomely. After it cleared the 2024 stress test, the company increased its quarterly dividend by 8% to 26 cents per share. In the last five years, it has hiked dividends four times, with an annualized growth rate of 8.35%. Currently, the company's payout ratio is 33% of earnings.
Dividend Yield
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In July 2024, the company authorized a $25 billion stock repurchase program, effective Aug. 1. As of Sept. 30, 2024, almost $22.4 worth of buyback authorization remained available.
Bullish Analyst Sentiments for BAC in 2025
Over the past month, the Zacks Consensus Estimate for earnings of $3.27 per share for 2024 remained unchanged, while it was revised marginally upward to $3.67 per share for 2025.
Estimate Revision Trend
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These upward adjustments reflect a positive sentiment among analysts and suggest encouraging prospects for this year.
Earnings Estimates
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Find the latest EPS estimates and surprises on Zacks Earnings Calendar.
Bank of America Stock Trading at a Discount
Bank of America stock is currently trading at a 12-month trailing price-to-tangible book (P/TB) of 1.71X. This is below the industry’s 2.60X. This shows the stock is inexpensive currently.
Price-to-Tangible Book Ratio (TTM)
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BAC stock is inexpensive compared with JPM, which has a P/TB of 2.65X. On the other hand, it is trading at a premium C’s P/TB of 0.80X.
Bank of America Shares: A Smart Investment Opportunity
Bank of America's global presence, diversified revenue streams, ongoing branch openings, relatively lower rates and technological innovations aimed at attracting and retaining customers provide a strong foundation for organic growth. Though the company faces near-term challenges, such as high funding costs and increased regulatory capital requirements under the Basel III framework, its attractive valuation makes the stock a compelling option for investors.
Given the company's solid fundamentals and favorable estimate revisions, investors should consider investing in Bank of America at its current price levels for potential gains in 2025.
Currently, Bank of America holds a Zacks Rank of 2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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Bank of America Corporation (BAC) : Free Stock Analysis Report
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
