Bank of America (NYSE: BAC) – Up, Down or Sideways? Masonford Analyst’s Take

Bank of America BAC Stock News

Source: StockCharts Bank of America (NYSE: BAC) 

Bank of America (NYSE: BAC) stock is considered undervalued by a panel of analysts. The stock is currently trading around $27.51 per share, with a market capitalization of approximately $251.574 billion (September 1, 2019). The stock price has whipsawed wildly over the past 1 year, trading at a low of $22.66 per share and a high of $31.37 per share. Based on its current price, this indicates a 17.63% slide, and a 14.03% appreciation. Bank of America stock has a price earnings ratio of 9.79 and an earnings per share of 2.81. As an undervalued stock, investors believe there is strong growth potential and the consensus forecast among analysts is a buy recommendation.

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Masonford trading experts point out that the last 4 earnings figures have resulted in better-than-expected performance for the stock. From Q3 2018 through Q3 2019, BAC stock has consistently outperformed expectations, generating improved EPS each quarter. The 1-year target price is $33, and the stock is offering a current yield of 2.23% with a dividend payment date expected on September 27, 2019. On a recommendation rating scale of 1 (strong buy) through 5 (sell), Bank of America’s stock is currently graded at 2.3 by Yahoo analysts, indicating a ‘buy’ proposition. It’s worth highlighting several important upgrades and downgrades of the stock in recent months, including the following:

  • June 18, 2019BMO Capital upgraded BAC from Market Perform to Outperform status
  • July 9, 2019JP Morgan maintained its rating on BAC at Overweight
  • July 26, 2019Keefe Bruyette & Woods upgraded BAC from Market Perform to Outperform
  • August 29, 2019Raymond James downgraded expectations for BAC from Outperform to Market Perform

Over time, analysts from Masonford indicate that the number of recommendations in favor of a ‘Buy’ or ‘Strong Buy’ rating on BAC have increased while those for ‘Underperform’ have decreased sharply. This is evident with strong numbers of call options on derivatives instruments like CFDs (contracts for difference) on BAC stock. The technical indicators paint an equally interesting picture for Bank of America. The 50-day moving average price is $28.54 per share, and the 200-day moving average is currently $27.98 per share. With a prevailing price of $27.51, it is clear that BAC is underperforming and largely undervalued.

Various Exchange Traded Funds (ETFs) currently hold substantial BAC stocks as part of their funds. These include a 6.73% weighting for Invesco ETF Trust II Invesco SNP financials R, a 7.08% weighting for Vanguard Financials ETF, a 7.76% weighting for SPDR Select Sector Fund XLF, an 8.09% weighting for iShares US Financial Services ETF, and an 8.17% weighting for Invesco KBW Bank ETF. Credit ratings agency Moody’s has assessed Bank of America stock and assigned a rating of A2, which means it is a medium-risk stock (March 6, 2019). Moody’s analytics risk score is currently 6, indicating the credit risk for BAC stock. This risk projection evaluates BAC from a 1-year timeline perspective. 

Factors Impacting the Performance of BAC Stock

Interest rates have a strong impact on the performance of banking stocks. It is clear that the lower the interest rate, the weaker the expected returns on borrowed money. However, there is a delay between the Fed cutting interest rates and banks reducing the interest rates they charge to borrowers. The Fed slashed interest rates by 25-basis points in the range of 2% – 2.25% in July, in what is known as an insurance cut. 

This is designed to keep the US economy moving along, in the face of an ongoing trade war between the world’s top two economies (US and China). The move away from quantitative tightening to quantitative easing is perceived as good news for the overall economy. It means that companies can borrow money for expansion, people can borrow more affordably for home purchases, and credit card rates won’t be as high. This bodes well for more personal disposable income for users, but also means less profits for credit card companies, banks and other financial institutions. 

This sentiment is echoed by analysts who believe that the stock price will continue plunging after the Fed rate cut. For the year-to-date, BAC shares have risen in the region of 9% – 10%, but declines are now expected moving into Q4 2019. It is evident that BAC assets are a lot more sensitive to rate cuts then competing banks like WFC, C, JPM, and GS. If the Fed pursues its policy of rate cuts, further downward revisions of BAC stock can be expected.

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