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Bank of America

NYSE:BAC
Snowflake Description

Flawless balance sheet and fair value.

The Snowflake is generated from 30 checks in 5 different areas, read more below.
BAC
NYSE
$236B
Market Cap
Diversified Banks
Company description

Bank of America Corporation, through its subsidiaries, provides banking and financial products and services for individual consumers, small and middle-market businesses, institutional investors, large corporations, and governments worldwide. More info.


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3 Month History
BAC
Industry
5yr Volatility vs Market

Value

 Is Bank of America undervalued based on future cash flows and its price relative to the stock market?

Value is all about what a company is worth versus what price it is available for. If you went into a grocery store and all the bananas were on sale at half price, they could be considered undervalued.
INTRINSIC VALUE BASED ON FUTURE CASH FLOWS
Here we compare the current share price of Bank of America to its discounted cash flow value.

The discounted cash flow value is simply looking at what the company is worth today, based on estimates of how much money it is expected to make in the future.

Dividends have been used for this discounted cash flow calculation, why is this?

  • The current share price of Bank of America is above its future cash flow value.
Often investors are willing to pay a premium for a company that has a high dividend or the potential for future growth.
PRICE RELATIVE TO MARKET
We can also value a company based on what the stock market is willing to pay for it. This is similar to the price of fruit (e.g. Mangoes or Avacados) increasing when they are out of season, or how much your home is worth.

The amount the stock market is willing to pay for Bank of America's earnings, growth and assets is considered below, and whether this is a fair price.
Price based on past earnings
Are Bank of America's earnings available for a low price, and how does this compare to other companies in the same industry?
  • Good value based on earnings compared to the Banks industry average.
  • Good value based on earnings compared to the overall market.
Price based on expected Growth
Does Bank of America's expected growth come at a high price?
  • Poor value based on expected growth next year.
Price based on value of assets
What value do investors place on Bank of America's assets?
  • Good value based on assets compared to the Banks industry average.
X
Value checks
We assess Bank of America's value by looking at:
  1. Is the discounted cash flow value less than 20%, or 40% of the share price? (2 checks) (Click here or on bar chart for details of DCF calculation.)
  2. Is the PE ratio less than the market average, and/ or less than the Banks industry average (and greater than 0)? (2 checks)
  3. Is the PEG ratio within a reasonable range (0 to 1)? (1 check)
  4. Is the PB ratio less than the Banks industry average (and greater than 0)? (1 check)
  5. Bank of America has a total score of 3/6, see the detailed checks below.

    Note: We use GAAP Earnings per Share in all our calculations including PE and PEG Ratio.
    Note 2: PEG ratio is based on analysts EPS growth expectations in 1 year (12.8%).

    Full details on the Value part of the Simply Wall St company analysis model.
X
Discounted cash flow (Dividend Discount Model)

The calculations below outline how an intrinsic value for Bank of America is arrived at by discounting future dividends to their present value. This approach is used for finance firms where free cash flow is difficult to estimate (e.g. Banks/ Insurance firms).

If the firm does not pay the majority of its earnings out as a dividend this method will often arrive at a value significantly lower than the share price.

See our documentation to learn about this calculation.



Value of the stock

Value = Expected dividends per share / (Discount Rate - Perpetual growth rate)
$5.03 = ($0.39 / (10.09% - 2.33%)

Value per share:
$5.03

Current discount (share price of $24.48): -387%



Estimate of Discount Rate

The discount rate, or required rate of return, is estimated by calculating the Cost of Equity.

Discount rate = Cost of Equity = Risk Free Rate + (Levered Beta * Equity Risk Premium)

Discount rate = 10.09% = 2.33% + (1.011 * 7.67%)



Estimate of Bottom Up Beta

The Levered is used in the case of financial firms, but it is not adjusted for financial leverage like with non-finance firms. Therefore the average levered beta from comparable firms is used as the bottom-up beta. It is limited to 0.8 to 2.0 (practical range for a stable firm).

Average Levered Beta from peers = 1.011

Levered Beta used in calculation = 1.011



Assumptions
  1. The risk free rate of 2.33% is from the 10 year government bond rate in US.
  2. The bottom-up beta is estimated by analysing other companies in the same industry.
  3. The Equity Risk Premium is calculated by subtracting the risk free rate from the market return premium (10%) (source: Buffet).
  4. The dividend discount model is automatically used for companies in the following industries: Banks, Insurance, Real Estate Investment Trusts (REITs), Diversified Financial Services and Capital Markets.

Future Performance

 How is Bank of America expected to perform in the next 1 to 3 years based on estimates from 10 analysts?

    The future performance of a company is measured in the same way as past performance, by looking at estimated growth and how much profit it is expected to make.

    Future estimates come from professional analysts. Just like forecasting the weather, they don’t always get it right!
    3 year growth
    42%
    Expected earnings growth over 3 years.
    Future Earnings growth analysis
    Is Bank of America expected to grow at an attractive rate? We look at the 1 year and 3 year growth below.

    Are Bank of America's annual earnings growth expected to exceed 3.4% over the next 3 years?

    • After 1 year
    • After 3 years
    1 & 3 year estimated growth in earnings
    Past and Future Earnings per Share
    The accuracy of the analysts who estimate the future performance data can be gauged below. We look back 3 years and see if they were any good at predicting what actually occured. We also show the highest and lowest estimates looking forward to see if there is a wide range.
    Analysts growth expectations
    2 year growth check
    Super high growth metrics x1.5?

    Which of the these is expected to increase by over 50% in 2 year's time?

    • Revenue
    • Cash flow data unavailable.
    • Profit
    Performance in 3 years
    In the same way as past performance we look at the future estimated return (profit) compared to the available funds. We do this looking forward 3 years.
    • Bank of America is not expected to perform strongly, Return on Equity (ROE) in 3 years is estimated to be below 20%.

    Improvement & Relative to industry
    • Expected to be less than the Banks industry average.
    • An improvement in Bank of America's performance (ROE) is expected over the next 3 years.
    X
    Future performance checks
    We assess Bank of America's future performance by looking at:
    1. Is the growth in earnings expected to beat the low risk savings rate, plus a premium to keep pace with inflation, in 1 year and 3 years? (2 checks)
    2. Does the average analyst expect Revenue to increase by 50% or more in 2 years? (1 check)
    3. Does the average analyst expect Operating Cash Flow to increase by 50% or more in 2 years? (1 check)
    4. Does the average analyst expect Net Income (Profit) to increase by 50% or more in 2 years? (1 check)
    5. Is the Return on Equity in 3 years expected to be over 20%? (1 check)
    Some of the above checks will fail if the company is expected to be loss making in the relevant year.
    Bank of America has a total score of 2/6, see the detailed checks below.

    Note: If no +3 year data is available, +2.5 year data may be used.

    Note 2: We use GAAP per Share in all our calculations.

    Full details on the Future part of the Simply Wall St company analysis model.

    Past Performance

     How has Bank of America performed over the past 5 years?

    The past performance of a company can be measured by how much growth it has experienced and how much profit it makes relative to the funds and assets it has available.
    Past earnings growth
    Below we compare Bank of America's growth in the last year to its industry (Banks).
    Past Earnings growth analysis
    We also check if the company has grown in the past 5 years, and whether it has maintained that growth in the year.
    • Bank of America's earnings growth has exceeded the industry average over the past year.
    • Bank of America's 1 year earnings growth is less than its 5 year annual average (19.9% vs 61.6%).
    • Bank of America has improved earnings in the past 5 years.
    Profit History
    Bank of America's revenue and profit over the past 5 years is shown below, any years where they have experienced a loss will show up in red.
    Performance last year
    We want to ensure a company is making the most of what it has available. This is done by comparing the return (profit) to a company's available funds, assets and capital.
    • Poor return on shareholders funds (ROE) last year.
    • Bank of America performed worse than the Banks industry average based on return on assets (ROA) last year.
    • Performance based on revenue producing assets (ROCE) is broadly the same over 3 years.
    X
    Past performance checks
    We assess Bank of America's performance over the past 5 years by checking for:
    1. Has earnings per share (EPS) increased in past 5 years? (1 check)
    2. Has the EPS growth in the last year exceeded that of the Banks industry? (1 check)
    3. Is the current EPS growth higher than the average annual growth over the past 5 years? (1 check)
    4. Is the Return on Equity (ROE) higher than 20%? (1 check)
    5. Is the Return on Assets (ROA) above industry average? (1 check)
    6. Has the Return on Capital Employed (ROCE) increased from 3 years ago? (1 check)
    The above checks will fail if the company has reported a loss in the most recent earnings report. Some checks require at least 3 or 5 years worth of data.
    Bank of America has a total score of 3/6, see the detailed checks below.

    Note: We use GAAP Earnings per Share in all our calculations.

    Full details on the Past part of the Simply Wall St company analysis model.

    Health

     How is Bank of America's financial position? (This company is analysed differently as a bank or financial institution)

    This company is a bank or financial institution.

    Fundamentally a bank's business is based upon borrowing and lending money, for this reason they typically have high levels of debt and we analyse them differently.
    Net Worth
        Balance sheet
        This treemap shows a more detailed breakdown of Bank of America's finances. If any of them are yellow this indicates they may be out of proportion and red means they relate to one of the checks below.
        Assets
        Liabilities and shares
        The 'shares' portion represents any funds contributed by the owners (shareholders) and any profits.
            Historical Debt
            Nearly all companies have debt. Debt in itself isn’t bad, however if the debt is too high, or the company can’t afford to pay the interest on its debts this may have impacts in the future.

            The graphic below shows equity (available funds) and debt, we ideally want to see the red area (debt) decreasing.

            If there is any debt we look at the companies capability to repay it, and whether the level has increased over the past 5 years.
                    BANK ANALYSIS

                    This company is a bank or financial institution, which is analysed accordingly below.

                    Below we check the amount of loans the bank has, how many of those are bad, and its ability to cover any bad loans.
                    • Acceptable proportion of non-loan assets held.
                    • Liabilities are made up of primarily low risk sources of funding.
                    • Loans are broadly funded by customer deposits.
                    • The banks level of assets compared to its equity is low (i.e. an appropriate level of borrowing to fund lending).
                    • High level of bad loan coverage.
                    • Acceptable level of bad loan write offs (less than 2%).
                    X
                    Financial health checks (Bank)
                    We assess Bank of America's financial health as a bank by checking for:
                    1. Leverage (Assets to Equity > 20x)? (1 check)
                    2. Coverage of bad loans (Bad Loan Coverage > 100%)? (1 check)
                    3. Proportion of lower risk deposits compared to total funding (Deposits to Liabilities < 50%)? (1 check)
                    4. Proportion of higher risk assets compared to total assets (Loans to Assets > 110%)? (1 check)
                    5. Total loans compared to deposit funding (Loans to Deposits > 125%)? (1 check)
                    6. Level of bad loans (Net Charge Off Ratio > 3%)? (1 check)
                    7. Bank of America has a total score of 6/6, see the detailed checks below.


                    Full details on the Health part of the Simply Wall St company analysis model.

                    Dividends

                     What is Bank of America's current dividend yield, its reliability and sustainability?

                    Dividends are regular cash payments to you from the company, similar to a bank paying you interest on a savings account.
                    Annual Dividend Income
                    Dividend payments
                    1.24%
                    Current annual income from Bank of America dividends. Estimated to be 2.32% next year.
                    If you bought $2,000 of Bank of America shares you are expected to receive $25 in your first year as a dividend.
                    Dividend Amount
                    Here we look how much dividend is being paid, if any. Is it above what you can get in a savings account? It is up there with the best dividend paying companies?
                    • Paying below low risk savings rate. (2.25%)
                    • Paying below the markets top dividend payers. (3.18%)
                    Historical dividend yield
                    It is important to see if the dividend for a company is stable, and not wildly increasing/decreasing each year. This graph shows you the historical rate to count toward your assessment of the stock.

                    We also check to see if the dividend has increased in the past 10 years.
                    • Dividends per share have been volatile in the past 10 (annual drop of over 10%).
                    • Dividends per share have fallen over the past 10 years.
                    Current Payout to shareholders
                    What portion of Bank of America's earnings are paid to the shareholders as a dividend.
                    • Dividends paid are well covered by net profit (4.3x coverage).
                    Future Payout to shareholders
                    • Dividends after 3 years are expected to be well covered by net profit (3.3x coverage).
                    X
                    Income/ dividend checks
                    We assess Bank of America's dividend by checking for:
                    1. Firstly is the company paying a notable dividend (greater than 0.5%) - if not then the rest of the checks are ignored.
                    2. Current dividend yield, is there one at all, is it higher than the low risk savings rate, and is it above the top 25% of dividend payers? (2 checks)
                    3. Have they paid a dividend for 10 years, and during this period has the dividend been volatile (drop of more than 25%)? (1 check)
                    4. If they have paid a dividend for 10 years has it increased in this time? (1 check)
                    5. How sustainable is the dividend, can Bank of America afford to pay it from its earnings today and in 3 years (Payout ratio less than 90%)? (2 checks)
                    6. Bank of America has a total score of 2/6, see the detailed checks below.


                    Full details on the Dividends part of the Simply Wall St company analysis model.

                    Management

                     What is the CEO of Bank of America's salary, the management and board of directors tenure and is there insider trading?

                    Management is one of the most important areas of a company. We look at unreasonable CEO compensation, how long the team and board of directors have been around for and insider trading.
                    CEO
                    Brian Moynihan, image provided by Google.
                    Brian Moynihan
                    COMPENSATION$15,940,132
                    AGE57
                    CEO Bio

                    Mr. Brian T. Moynihan has been the Chief Executive Officer and Director of Bank of America Corporation since January 01, 2010 and has been its Chairman since October 01, 2014. Mr. Moynihan has been the President of Bank of America Corporation since January 01, 2010. He serves as the General Partner of Bofa Merrill Lynch Preferred Capital Trust III, BofA Merrill Lynch Preferred Capital Trust IV, BofA Merrill Lynch Preferred Funding IV LP, BofA Merrill Lynch Preferred Funding III LP, BofA Merrill Preferred Capital Trust V and BofA Merrill Lynch Preferred Funding V LP. He served as the President of Global Banking & Wealth Management of Bank of America Corporation since January 2010. His direct support of diversity and inclusion initiatives across Bank of America is instrumental in creating an inclusive work environment. Mr. Moynihan served as the Chief Executive Officer of Merrill Lynch & Co., Inc. He served as the Director of Operation at Qualsec since September 2008. Mr. Moynihan served as the President at Global Wealth & Investment Management at Banc of America Investment Services, Inc. He served as the President at Fleet National Bank. Mr. Moynihan served as General Counsel at Bank of America Corporation from December 2008 to January 2010 and also as its Head of Consumer Banking from August 2009 to January 2010. He served as the President of Global Wealth and Investment Management at Bank of America Corporation from April 2004 to October 2007. Mr. Moynihan served as the President of Global Banking, Global Wealth & Investment Management at Bank of America Corporation since January 2009 and served as its President of Global Corporate and Investment Banking from October 2007 to October 2, 2008 and President of Private Equity & Global Operations from October 2, 2008 to January 2009. He managed Bank of America Corporation's third-party, nonproprietary and open architecture investment product platforms. Mr. Moynihan joined Bank of America in 2004. He served as an Executive Vice President of Wealth Management and Brokerage at FleetBoston Financial Corporation from 2000 to April 2004. Mr. Moynihan served as the Managing Director of Corporate Strategy and Development at FleetBoston Financial Corp. since 1994 and its Senior Vice President since 1998. He served as Fleet's eCatalyst from 2000 to 2001 and was responsible for driving the development and implementation of Fleet's Internet strategy. His responsibilities included oversight of all mergers & acquisitions, including the merger of Fleet Financial Group and BankBoston Corporation and Fleet's earlier acquisitions of Quick & Reilly, Columbia Management, Shawmut National Corporation, NatWest Bank's US Operations, Sanwa Business Credit and others. Mr. Moynihan joined Fleet Financial Group in April 1993 as the Deputy General Counsel. He serves as the Chairman and a Director of Boy's And Girl's Clubs of Boston Inc. He served as the Chairman of the Crossroads Rhode Island and Providence Haitian Project Inc. He served as the Chairman of the Board and Director at Merrill Lynch & Co., Inc. Mr. Moynihan serves as a Director of Bank of America N.A., United Way of Mass Bay (also known as United Way of Massachusetts Bay Inc.), YouthBuild Boston Inc., and FIA Card Services, N.A. In 2010, Mr. Moynihan was elected as a Trustee of the Corporation of Brown University. He served as a Director of BlackRock Inc. since February 2009. Mr. Moynihan has been chairing Bank of America's Global Diversity and Inclusion Council since 2007 and is an Executive Champion of its Disabilities Affinity Group for Bank of America associates. He holds BA from Brown University in 1981 and JD from University of Notre Dame Law School in 1984. Mr. Moynihan has a B.Ph. and an M.A. from Miami University.

                    CEO Compensation
                    • CEO's compensation has been consistent with company performance over the past year.
                    • CEO's compensation appears reasonable.
                    Management Team Tenure

                    Average tenure of the Bank of America management team:

                    Management tenure
                    4.8 years
                    • The tenure for the Bank of America management team is about average.
                    Management Team

                    Brian Moynihan

                    TITLE
                    Chairman
                    COMPENSATION
                    $15,940,132
                    AGE
                    57

                    Paul Donofrio

                    TITLE
                    Chief Financial Officer
                    COMPENSATION
                    $10,612,092
                    AGE
                    57

                    Tom Montag

                    TITLE
                    Chief Operating Officer
                    COMPENSATION
                    $15,668,712
                    AGE
                    60

                    Terry Laughlin

                    TITLE
                    Vice Chairman and Head of Global Wealth & Investment Management
                    COMPENSATION
                    $9,590,217
                    AGE
                    62

                    Geoffrey Greener

                    TITLE
                    Chief Risk Officer
                    COMPENSATION
                    $9,543,129
                    AGE
                    52

                    Walter Muller

                    TITLE
                    Chief Investment Officer
                    Board of Directors Tenure

                    Average tenure of the Bank of America board of directors:

                    Board tenure
                    8.1 years
                    • The tenure for the Bank of America board of directors is about average.
                    Board of Directors

                    Brian Moynihan

                    TITLE
                    Chairman
                    COMPENSATION
                    $15,940,132
                    AGE
                    57

                    Tom May

                    TITLE
                    Independent Director
                    COMPENSATION
                    $320,000
                    AGE
                    70

                    Frank Bramble

                    TITLE
                    Independent Director
                    COMPENSATION
                    $340,000
                    AGE
                    69

                    Monica Lozano

                    TITLE
                    Independent Director
                    COMPENSATION
                    $320,000
                    AGE
                    60

                    Sharon Allen

                    TITLE
                    Independent Director
                    COMPENSATION
                    $345,000
                    AGE
                    65

                    Jack Bovender

                    TITLE
                    Lead Independent Director
                    COMPENSATION
                    $450,000
                    AGE
                    72
                    Recent Insider Trading
                    • More shares have been bought than sold by Bank of America insiders in the past 3 months.
                    Who owns this company?
                    X
                    Management checks
                    We assess Bank of America's management by checking for:
                    1. Is the CEO's compensation unreasonable compared to market cap and profit (greater than 0.5% of the company's profit + 0.03% of market cap)? (1 check)
                    2. Has the CEO's compensation increased more than 20% whilst the EPS is down more then 20%? (1 check)
                    3. Is the average tenure of the management team less than 2 years? (1 check)
                    4. Is the average tenure of the board of directors team less than 3 years? (1 check)
                    5. Bank of America has a total score of 6/6, this is not included on the snowflake, see the detailed checks below.


                    Note: We use the top 6 management executives and board members in our calculations.

                    Note 2: Insider trading include any internal stakeholders and these transactions.

                    Full details on the Management part of the Simply Wall St company analysis model.

                    Company News

                    Company Info

                    Description

                    Bank of America Corporation, through its subsidiaries, provides banking and financial products and services for individual consumers, small and middle-market businesses, institutional investors, large corporations, and governments worldwide. It operates through four segments: Consumer Banking, Global Wealth & Investment Management, Global Banking, and Global Markets. The Consumer Banking segment offers traditional and money market savings accounts, CDs and IRAs, noninterest- and interest-bearing checking accounts, and investment accounts and products, as well as credit and debit cards, residential mortgages and home equity loans, and direct and indirect loans. This segment provides its products and services through approximately 4,600 financial centers, 15,900 ATMs, call centers, and online and mobile platforms. The Global Wealth & Investment Management segment offers investment management, brokerage, banking, and retirement products, as well as wealth management and customized solutions. The Global Banking segment provides lending products and services, including commercial loans, leases, commitment facilities, trade finance, real estate lending, and asset-based lending; treasury solutions, such as treasury management, foreign exchange, and short-term investing options; working capital management solutions; and debt and equity underwriting and distribution, and merger-related and other advisory services. The Global Markets segment offers market-making, financing, securities clearing, settlement, and custody services, as well as risk management, foreign exchange, fixed-income, and mortgage-related products. Bank of America Corporation was founded in 1874 and is based in Charlotte, North Carolina.

                    Details
                    Name:Bank of America Corporation
                    Ticker:BAC
                    Exchange:NYSE
                    Founded:1874
                    Market Cap:$236,186 million
                    Website:http://www.bankofamerica.com
                    Listings
                    Map

                    Bank of America Corporate Center, Charlotte, 28255, United States

                    Number of employees
                    Street

                    Current staff
                    Staff numbers
                    208,000
                    Bank of America employees.
                    Industry
                    Industry:Diversified Banks
                    Sector:Banks