Brian Moynihan's Digital Strategy Will Improve Future Operating Efficiencies

Key Takeaways

• Organic loan and deposit growth, along with strategic asset repricing, could drive record net interest income and revenue growth potential.
  
• Investments in digital capabilities and wealth management suggest enhanced efficiencies, with significant cross-selling opportunities bolstering future revenue and net margins.
  
• Bank of America's financial health faces risks from climate events, regulatory costs, high deposit rates, and geopolitical tensions affecting global operations.

Catalysts

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.

• Bank of America expects record net interest income (NII) in 2025, driven by organic growth in loans and deposits, advantageous repricing of fixed-rate assets, and stabilizing deposit rates, signaling potential increases in revenue and earnings.
  
• The company successfully grew deposits for six consecutive quarters, emphasizing disciplined pricing strategies and expanding client relationships, which should support future revenue growth and improve net interest margins.
  
• Investment Banking showed a strong rebound, with a 44% year-over-year increase in fees, supported by growth in mergers and acquisitions and capital markets activities, indicating potential revenue and earnings growth.
  
• Bank of America is heavily investing in digital capabilities and client engagement, with a significant increase in digital interactions and sales, which should lead to improved operating efficiencies and higher net margins.
  
• The wealth management business added 24,000 new households and achieved 23% growth in asset management fees, suggesting continued revenue enhancement and the potential for cross-selling opportunities, enhancing both revenue and net margins.

Bank of America Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Bank of America's revenue will grow by 7.2% annually over the next 3 years.
• Analysts assume that profit margins will increase from 26.5% today to 26.8% in 3 years time.
• Analysts expect earnings to reach $31.8 billion (and earnings per share of $4.61) by about January 2028, up from $25.5 billion today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 13.9x on those 2028 earnings, down from 14.0x today. This future PE is greater than the current PE for the US Banks industry at 12.3x.
• Analysts expect the number of shares outstanding to decline by 3.24% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.17%, as per the Simply Wall St company report.

Bank of America Future Earnings Per Share Growth

Risks

• The California wildfires mentioned by Brian Moynihan highlight the physical risks related to climate and natural disasters, which can lead to unforeseen expenses and affect the bank's overall financial performance and potentially its net margins.
  
• The $2.1 billion FDIC special assessment mentioned by Alastair Borthwick underscores regulatory and compliance costs that can unpredictably affect the bank's earnings.
  
• Brian Moynihan's reference to the recent compliance consent order by the OCC suggests ongoing compliance and regulatory challenges, which can increase costs and negatively impact the bank's operating expenses.
  
• High consumer deposit rates and the potential for continued rate cuts as emphasized by Alastair Borthwick could suppress net interest margins if not mitigated by sufficient loan growth or deposit pricing strategies.
  
• Moynihan's mention of geopolitical risks such as wars and supply issues could impact global markets, potentially affecting Bank of America's revenue from international and market-based operations.

Valuation

• The analysts have a consensus price target of $51.93 for Bank of America based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $59.0, and the most bearish reporting a price target of just $39.5.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $118.5 billion, earnings will come to $31.8 billion, and it would be trading on a PE ratio of 13.9x, assuming you use a discount rate of 7.2%.
• Given the current share price of $46.84, the analyst's price target of $51.93 is 9.8% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.