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BofA (BAC) Racing Past Other Banks Since 2016: Here’s How

Zacks

Bank of America Corporation BAC is among the best post-financial crisis success stories. The company’s financial performance has witnessed a significant turnaround over the last couple of years. This, in turn, has aided the stock’s rally.

If we look at 2016, BofA’s performance was one of the best. This was driven by several favorable macroeconomic factors like rising interest rates, improving economy and a rise in client activity.

Success of BofA’s cost control initiatives, steady rise in loans and deposits, higher trading revenues and steadily improving asset quality supported its performance last year. Moreover, election of Donald Trump as President acted as a catalyst. However, slump in energy sector marginally hurt the company’s performance. But this was more than offset by positive factors.

In 2016, the company’s shares rallied 29.1%, thus being the best performer compared with JPMorgan JPM, Citigroup C and Wells Fargo WFC.



Similarly, this year, BofA’s fundamental strength has continued to aid its profitability amid a slightly challenging operating backdrop as trading and mortgage banking activities slowed down. Nonetheless, easing margin pressure, given the two rate hikes announced this year and stable oil prices drove its financials. Further, the company has been steadily lowering its long-term debt.

Additionally, BofA along with others cleared the annual stress test. Notably, the company’s 2017 capital plan of a whopping 60% dividend hike and $12 billion share repurchase authorization was among the biggest. This reflected its strong balance sheet position and cheered investors.

After initial hiccups, electoral promises by President Trump including easing of regulatory burden for banks and tax reforms seem to be moving forward. Further, encouraging economic data and stability in the Fed’s policy despite change in leadership continue to drive the stock up.

So far this year, the company’s shares have jumped 27.5%. This is the best among big banks, with Citigroup coming the close second at 27%.



Nonetheless, chances of Citigroup surpassing BofA’s price performance this year are less. Citigroup continues to face margin pressure owing to persistent decline in its legacy holdings portfolio despite rise in rates. This remains a big concern and investors seem to be wary.

Therefore, BofA is likely to retain its top spot. With high chance of another rate later this month, investors seem to be bullish on the stock. Also, with improvement in economy, demand for loans will continue to rise.

Further, BofA seems undervalued when compared with the broader industry as its current price/book and price/sales ratios are lower than the respective industry averages. Therefore, given the strong fundamentals, the stock has upside potential.

Currently, BofA carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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