Back to top

Image: Bigstock

Will BofA (BAC) be the Top Performing Big Bank in Q3?

Read MoreHide Full Article

With the chances of a rate hike happening soon, banking stocks are in focus again. Banks, invariably, benefit from rising rates as it will ease some pressure on net interest margin, a key source of their earnings. So, we believe this is the right time for you to cash in and add a few banks to your investment portfolio.

Further, banking stocks are regaining investors’ confidence. So far in Q3, the S&P Regional Banks Select Industry Index has increased nearly 10%. Among the big banks, Bank of America Corporation (BAC - Free Report) has gained the most over the same time period. The stock has surged approximately 23.9% so far this quarter.

On the other hand, shares of other three big banks – Citigroup Inc. (C - Free Report) , JPMorgan Chase & Co. (JPM - Free Report) and Wells Fargo & Company (WFC - Free Report) – have increased 16.6%, 12% and 5.7%, respectively.

Wondering why BofA stock has jumped ahead of others. Let’s find out the reasons behind this.

Apart from gaining from rate hike (which all the banks will benefit), BofA’s cost saving initiatives seem to be the foremost reason for the rise in share prices. Further, the company’s legal costs have diminished over time. Notably, the company has been witnessing a downward trend in expenses since 2014. Also, management projects to maintain core expenses below $13 billion on a quarterly basis in 2016.

Further, BofA’s announcement of a 50% hike in quarterly cash dividend cheered the investors as well. Moreover, the company has authorized $5 billion share repurchase plan. Given its strong capital position, the company will continue to enhance shareholder value.

Also, the stock’s value ratios indicate that it is undervalued relative to its peers. The stock currently has a price-to-book value ratio of 0.67, compared with the industry average of 1.13. This indicates BofA is currently trading at a substantial discount to the industry average. Further, the stock has a price-to-earnings ratio of 12.44 compared with the industry average of just 13.00, reflecting a marginal discount.

Currently, BofA has a Zacks Rank #3 (Hold). In case you wish to find some better-ranked stocks from banking as well as other industries, you can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Confidential from Zacks

Beyond this Analyst Blog, would you like to see Zacks' best recommendations that are not available to the public? Our Executive VP, Steve Reitmeister, knows when key trades are about to be triggered and which of our experts has the hottest hand. Click to see them now>>

Published in