Bank of America (BAC - Free Report) , one of the biggest U.S. banks in terms of total assets, is well poised for growth, given the consistent rise in loan demand and branch expansion efforts amid lower interest rates. Also, prudent cost management and focus on improving operating efficiency are likely to support its financials.
This Zacks Rank #2 (Buy) stock seems like an attractive investment opportunity right now as it has been witnessing upward estimate revisions and promising price performance amid volatile markets.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Over the past seven days, the Zacks Consensus Estimate for earnings has remained unchanged for 2019 and moved nearly 1% upward for 2020. Moreover, shares of BofA jumped 43% in 2019, outperforming the industry’s rally of 35.3%.
Price Performance in 2019
Here’s Why BofA is an Attractive Choice
Earnings growth: Over the past three to five years, BofA witnessed earnings growth of 31%, significantly above the industry average of 13.1%. Further, the company’s earnings are projected to grow 3.1% and 12.7% for 2019 and 2020, respectively.
Moreover, BofA has an impressive earnings surprise history. Its earnings surpassed the Zacks Consensus Estimate in each of the trailing four quarters, the average beat being 9.1%.
The company’s long-term (three-five years) estimated earnings growth rate of 9% promises rewards for investors in the long run.
Revenue strength: BofA will continue to benefit from decent loan growth and improving economy. Further, the company is on track to expand to new cities, open nearly 500 new centers and redesign 2,500 centers with technology upgrades by 2021. Further, the bank has plans to add 2,200 more ATMs to its network. These initiatives, along with launch of Zelle and Erica, have enabled it to improve digital offerings.
Despite the challenging market environment, BofA’s total deposits and loan balances have been growing over the past several quarters. All these are expected to further support growth in revenues.
Cost control initiatives: Prudent expense management has been supporting BofA’s financials. Its expense-saving plan – Project New BAC (launched in 2011) – helped improve overall efficiency and save as much as $8.0 billion in costs annually till the end of 2014. Also, the expenses declined at a three-year CAGR of 1.6% (till 2018 end). Despite undertaking several strategic growth initiatives, management expects expenses for 2019 and 2020 to be lower year over year.
Encouraging capital deployment plan: The Federal Reserve has approved 2019 capital plans of BofA and other major banks like JPMorgan (JPM - Free Report) , Citigroup (C - Free Report) and Wells Fargo (WFC - Free Report) . Subsequently, BofA announced a 20% hike in its quarterly dividend to 18 cents per share in July 2019. Also, the company has a share repurchase program of up to $30.9 billion in place.
These activities reflect its balance sheet strength and commitment toward rewarding shareholders. Given the lower dividend payout ratio compared to its peers and earnings strength, the company should be able to sustain higher capital deployments.
Stock looks undervalued: If we compare BofA’s price-to-book (P/B) and price-to-earnings (F1) ratios with the respective industry averages, the stock appears undervalued. Its P/B and P/E ratios are 1.28 and 11.43 compared with the respective industry averages of 1.37 and 12.35.
Also, the stock currently has a Value Score of B. The Value Score condenses all valuation metrics into one actionable score that helps investors steer clear of “value traps” and identify stocks that are truly trading at a discount.
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