Bank of America (BAC) Lags Peers YTD: Will It Turnaround in 2024? (2024)
Nikita Kataruka
·4 min read
Shares of Bank of America BAC have gained only 2.2% so far this year, underperforming the industry’s rally of 10.1%. BAC’s performance also compares unfavorably with the Zacks Finance sector’s 14.9% rally over the same period.
Let us find out what led to BofA’s weaker performance.
Year 2023 started on a positive note on the back of the Federal Reserve’s monetary tightening policy to control ‘sticky’ inflation. However, the early March regional banking crisis, which led to the collapse of three large banks because of the deposit flight to higher-yielding investment options, was a wake-up call for banks.
Almost all banks, big or small, had to bear the brunt of the banking crisis at some level.
While banks generally perform well in a rising interest rate environment, the ultra-aggressive pace of rate hikes turned counterproductive for banks this year.
While higher rates did aid interest income growth to an extent, almost all banks faced pressure from rising deposit and funding costs, which hurt their margin growth.
Big banks, including JPMorgan JPM and Citigroup C, weathered this turmoil better than their smaller regional peers.
However, despite being the most interest rate sensitive among its peers, the situation was worse for BAC because of its billions of dollars worth of long-dated Treasuries and mortgage bonds, which it had piled up at low rates during the pandemic.
As rates continuously increased, the interest that BAC had to pay on deposits surged while the interest that it received from the above-mentioned long-term securities was relatively lesser. This resulted in hundreds of billions of dollars of unrealized losses being accumulated on BAC’s balance sheet.
While BAC recorded improvements in its net interest income (NII) and margins on the back of higher rates like its peers, the magnitude of the rise was not much.
BAC’s NII increased only 13.8% year over year in the nine months ended Sep 30, 2023.
JPM’s NII rose 40% and C recorded 16% growth in the same time frame.
BofA’s performance was weaker than its peers this year. However, as we enter 2024 with the expectation of a few rate cuts, the operating backdrop is likely to become slightly better for the company.
The central bank has signaled interest rate cuts of 75 basis points in 2024. If this happens, the yield curve will start to come down, which will be a positive for BAC because its credit profile will improve.
While the demand for loans is expected to remain moderate next year, BAC should witness growth in its interest income as deposit costs fall.
Also, BofA has continuously been making efforts to align its banking centers according to customer needs. The bank is on an ambitious expansion plan to open financial centers in new and existing markets. By 2026, BAC plans to expand its financial center network into nine new markets, while providing modern and state-of-the-art financial centers through its ongoing renovation and modernization project. Such efforts are expected to support BAC’s profitability to an extent next year.
In addition to the above-mentioned factors, BAC is expected to benefit from an improvement in the M&A scenario next year. Global deal volumes and value numbers were weak in 2023. However, with some green shoots visible in the investment banking (IB) business recently, an increase in M&As should positively impact BAC’s IB performance to some extent in 2024.
However, the volatile nature of the capital markets business, along with relatively higher mortgage rates, might make Bank of America’s fee income growth challenging. Moreover, elevated costs due to the company’s continued investments in technology and people across businesses will likely put pressure on its bottom line.
Hence, while concerns related to capital market volatility and elevated costs will continue to put pressure on BofA in the coming year, you should keep the Zacks Rank #3 (Hold) stock on your radar, given its efforts to expand into new markets, along with the benefits that the firm might get from falling rates.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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Price Range for 2024: $39.50–$44.17 (as for May 15, 2024). Coin Price Forecast's 2024 prediction for Bank of America (BAC) stock suggests modest growth from $39.5 to $44.2 over the year.
Based on 24 Wall Street analysts offering 12 month price targets for Bank of America in the last 3 months. The average price target is $39.71 with a high forecast of $46.00 and a low forecast of $33.00. The average price target represents a -0.13% change from the last price of $39.76.
According to the latest long-term forecast, Bank of America price will hit $45 by the end of 2024 and then $55 by the end of 2025. Bank of America will rise to $60 within the year of 2026, $70 in 2027, $75 in 2028, $90 in 2029, $95 in 2030, $100 in 2031 and $110 in 2033.
The Bank of America stock holds a sell signal from the short-term Moving Average; at the same time, however, there is a buy signal from the long-term average. Since the short-term average is above the long-term average there is a general buy signal in the stock giving a positive forecast for the stock.
With the Fed holding rates flat before pivoting to rate cuts sometime in mid-2024, we expect banks to see deposits decline modestly and funding costs to rise incrementally in the first half of the year. Profitability will dip but remain in good shape, and banks will build capital.
The 17 analysts with 12-month price forecasts for Bank of America stock have an average target of 39.02, with a low estimate of 33 and a high estimate of 46. The average target predicts a decrease of -0.38% from the current stock price of 39.17.
Berkshire Hathaway (BRK. A 0.18%)(BRK. B 0.08%): Warren Buffett's Berkshire Hathaway is the largest Bank of America shareholder, with 1.03 billion shares amounting to a 13% stake. As of March 2024, it was the second-largest of Warren Buffett's stock holdings after Apple (AAPL 0.09%), worth almost $37 billion.
At the end of March, these were the top stocks in Berkshire's portfolio by number of shares: Bank of America (BAC), 1.03 billion. Apple (AAPL), 789.4 million.
The Boston Omaha Corporation stock prediction for 2025 is currently $ 16.19, assuming that Boston Omaha Corporation shares will continue growing at the average yearly rate as they did in the last 10 years. This would represent a 9.28% increase in the BOC stock price.
Is Bank of America stock a Buy, Sell or Hold? Bank of America stock has received a consensus rating of buy. The average rating score is A1 and is based on 50 buy ratings, 23 hold ratings, and 6 sell ratings.
Bank of America stock (symbol: BAC) underwent a total of 3 stock splits. The most recent stock split occured on August 30th, 2004. One BAC share bought prior to November 21st, 1986 would equal to 8 BAC shares today.
Based on short-term price targets offered by 22 analysts, the average price target for Bank of America comes to $38.54. The forecasts range from a low of $31.00 to a high of $46.00. The average price target represents a decline of 0.95% from the last closing price of $38.91.
As of 2024-05-22, the Fair Value of Bank of America Corp (BAC) is 16 USD. This value is based on the Peter Lynch's Fair Value formula. With the current market price of 39.65 USD, the upside of Bank of America Corp is -59.6%.
Bank of America Corporation ( BAC ) pays dividends on a quarterly basis. The next dividend payment is planned on June 28, 2024 . Bank of America Corporation ( BAC ) has increased its dividends for 11 consecutive years.
S&P Global Ratings expects U.S. real GDP growth of 2.5% in 2024 as the labor market remains sturdy. We continue to expect the economy to transition to slightly below-potential growth in the next couple of years.
MBA: Rates Will Decline to 6.4% In its April Mortgage Finance Forecast, the Mortgage Bankers Association predicts that mortgage rates will fall from 6.8% in the first quarter of 2024 to 6.4% by the fourth quarter. The industry group expects rates will fall below the 6% threshold in the fourth quarter of 2025.
Bank Of America total assets for the quarter ending March 31, 2024 were $3,273.803B, a 2.48% increase year-over-year. Bank Of America total assets for 2023 were $3180.151B, a 4.22% increase from 2022. Bank Of America total assets for 2022 were $3051.375B, a 3.73% decline from 2021.
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