Bank of America (BAC) Climbs This Morning

Shares of Bank of America, a diversified banking company, rose 1.1% to a price of $32.54. They are now -20.61% below their average analyst target price of $40.99. The average analyst rating for the stock is buy. BAC lagged the S&P 500 index by 0.3% so far today and by -8.7% over the last year, returning -27.3%.

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.

Bank of America's trailing 12 month P/E ratio is 10.3, based on its trailing Eps of $3.16. The company has a forward P/E ratio of 8.9 according to its forward Eps of $3.67 -- which is an estimate of what its earnings will look like in the next quarter. The P/E ratio is the company's share price divided by its earnings per share. In other words, it represents how much investors are willing to spend for each dollar of the company's earnings (revenues minus the cost of goods sold, taxes, and overhead). As of the third quarter of 2022, the financial services sector has an average P/E ratio of 13.34, and the average for the S&P 500 is 15.97.

It’s important to put the P/E ratio into context by dividing it by the company’s projected five-year growth rate. This results in the Price to Earnings Growth, or PEG ratio. Companies with comparatively high P/E ratios may still have a reasonable PEG ratio if their expected growth is strong. On the other hand, a company with low P/E ratios may not be of value to investors if it has low projected growth.

Bank of America's PEG ratio of 1.71 indicates that its P/E ratio is fair compared to its projected earnings growth. Insofar as its projected earnings growth rate turns out to be true, the company is probably fairly valued by this metric.

Turning now to the company's net margins, we can see that profitability is not an issue:

Date Reported Total Revenue ($ MM) Net Profit ($ MM) Net Margins (%) YoY Growth (%)
2021-12-31 89,113 31,978 35.88 71.51
2020-12-31 85,528 17,894 20.92 -30.41
2019-12-31 91,244 27,430 30.06 -2.56
2018-12-31 91,247 28,147 30.85 n/a

To deepen our understanding of the company's finances, we should study the effect of its depreciation and capital expenditures on the company's bottom line. We can see the effect of these additional factors in Bank of America's free cash flow, which was $-7,193,000,000.00 as of its most recent annual report.

This represents the amount of money that is available for reinvesting in the business, or for paying out to investors in the form of a dividend. With its strong cash flows, BAC is in a position to do either -- which can encourage more investors to place their capital in the company. Over the last four years, the company's free cash flow has been growing at a rate of -33.7% and has on average been $33,024,250,000.00.

Another valuation metric for analyzing a stock is its Price to Book (P/B) Ratio, which consists in its share price divided by its book value per share. The book value refers to the present liquidation value of the company, as if it sold all of its assets and paid off all debts). Bank of america's P/B ratio indicates that the market value of the company exceeds its book value by a factor of 1.1, but is still below the average P/B ratio of the Financial Services sector, which stood at 1.95 as of the third quarter of 2022.

Since it has a very low P/E ratio, a lower P/B ratio than the sector average, and an irregular stream of positive cash flows with a downwards trend, Bank of America is likely fairly valued at today's prices. The company has strong growth indicators because of an average PEG ratio and strong and consistent net margins with a positive growth rate. We hope you enjoyed this overview of BAC's fundamentals. Be sure to check the numbers for yourself, especially focusing on their trends over the last few years.

The above analysis is intended for educational purposes only and was performed on the basis of publicly available data. It is not to be construed as a recommendation to buy or sell any security. Any buy, sell, or other recommendations mentioned in the article are direct quotations of consensus recommendations from the analysts covering the stock, and do not represent the opinions of Market Inference or its writers. Past performance, accounting data, and inferences about market position and corporate valuation are not reliable indicators of future price movements. Market Inference does not provide financial advice. Investors should conduct their own review and analysis of any company of interest before making an investment decision.