Bank of America (NYSE: BAC) joined the cohort of financial institutions that kicked off the Q3 earnings season.
While the news took it to a new multi-year high, the insiders seem to be predominantly selling as the price reaches our intrinsic value point.
Q3 Earnings and Developments
- GAAP EPS: US$0.85 (beat by US$0.14)
- Revenue: US$22.77b (beat by US$1.17b)
- Revenue growth: +12.2% Y/Y
The bank reported a record number of consumer checking accounts – 34.2 million. Debit and credit card transactions increased by 21% Y/Y, reaching US$201b.
Meanwhile, its asset and wealth management business grew, reaching record client balances of US$3.7tn. The stock is now up almost 50% year-to-date, and it is reaching our point of intrinsic value, as you can see below.
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Bank of America Insider Transactions Over The Last Year
Over the last year, we can see that the most prominent insider sale was by the Chief Accounting Officer, Rudolf Bless, for US$5.1m worth of shares, at about US$36.44 per share. So it's clear an insider wanted to take some cash off the table, even below the current price of US$45.07.
When an insider sells below the current price, it suggests that they considered that lower price to be fair. That makes us wonder what they think of the (higher) recent valuation. However, while insider selling is sometimes discouraging, it's only a weak signal. We note that the biggest single sale was 57% of Rudolf Bless's holding.
You can see a visual depiction of insider transactions (companies and individuals) below the last 12 months. By clicking on the graph below, you can see the precise details of each insider transaction!
Bank of America Insiders Are Selling The Stock
The last quarter saw substantial insider selling of Bank of America shares. In total, insider Thong Nguyen sold US$3.2m worth of shares in that time, and we didn't record any purchases whatsoever. This may suggest that some insiders think that the shares are not cheap.
Does Bank of America Boast High Insider Ownership?
Looking at the total insider shareholdings in a company can help inform your view of whether they are well aligned with common shareholders. Usually, the higher the insider ownership, the more likely ownership will incentivize them to build the company long-term.
Bank of America insiders own 0.1% of the company, worth about US$497m. Most shareholders would be happy to see this sort of insider ownership since it suggests that management incentives are well aligned with other shareholders.
An insider sold stock recently, but they haven't been buying. And there weren't any purchases to give us comfort over the last year.
Although insider selling might be a sign of caution, especially after significant rallies that the stock experienced this year, it is also important to note that Bank of America recently did an executive management overhaul - changing the CFO, CTO, CAO, and general counsel.
Since executives tend to have stock options in their compensation structure, it wouldn't surprise some insider selling is directly related to this change.
While insider transactions can help, there are many other variables to keep in mind. Every company has risks, and we've spotted 1 warning sign for Bank of America you should know about.
But note: Bank of America may not be the best stock to buy. So take a peek at this free list of interesting companies with high ROE and low debt.
For this article, insiders are those individuals who report their transactions to the relevant regulatory body. We currently account for open market transactions and private dispositions, but not derivative transactions.
What are the risks and opportunities for Bank of America?
Trading at 35.6% below our estimate of its fair value
Earnings are forecast to grow 6.3% per year
High level of non-cash earnings
Simply Wall St analyst Stjepan Kalinic and Simply Wall St have no position in any of the companies mentioned. This article is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
Stjepan is a writer and an analyst covering equity markets. As a former multi-asset analyst, he prefers to look beyond the surface and uncover ideas that might not be on retail investors' radar. You can find his research all over the internet, including Simply Wall St News, Yahoo Finance, Benzinga, Vincent, and Barron's.
Bank of America
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.
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