Shares of Bank of America (NYSE:BAC) have more than tripled the return of the S&P 500 over the past year. This enriches current shareholders of the nation’s second-biggest bank by assets, but could cause prospective investors to wonder whether its stock is still a buy right now.
Analysts seem to think it is. Of 32 analyst recommendations tracked by Yahoo! Finance, 23 of them rate Bank of America’s shares as either a buy or a strong buy. Eight rate the bank a hold while only one says investors should sell its stock.
On top of this, if the consensus price target among analysts is any indication, Bank of America’s shares have 16% upside from their current price. The average target comes in at $26.17 per share, compared to today’s $22.58 per share.
There are two fundamental explanations for this optimism. The first is that interest rates are climbing, which will translate into higher revenue and earnings at Bank of America and other banks. The second is that the current presidential administration, while embattled, is working to ease the regulatory burden on the financial services industry, which could slash compliance costs at banks across the country, and the biggest banks in particular.
Another factor in Bank of America’s favor is that its bottom line is improving. The Charlotte, North Carolina-based bank earned $4.3 billion in the first quarter, which was 44% more than the year-ago period.
And the icing on the cake is that Bank of America’s shares still trade at one of the lowest valuations among big bank stocks. They’re currently priced at a 7% discount to book value, according to YCharts.com. That makes it the third-cheapest blue-chip bank stock. By comparison, the average stock on the KBW Bank Index trades for a 41% premium to book value.
Before getting too excited and buying its shares today, however, a word of warning is in order. Namely, much of the recent increase in Bank of America’s share price came after the unexpected outcome of the presidential election. But that roughly 20% surge could be in jeopardy if things don’t improve in the nation’s capital, as the higher price hinges on expectations for corporate tax relief, lower regulations, and higher interest rates, all of which could be jeopardized by the chaos and emerging stalemate in Washington, D.C.
It’s my opinion, then, that investors should wait for political developments to continue to unfold. Even if things improve, Bank of America’s shares will still be reasonably priced. And in the seemingly more likely case that things get worse, investors may have an opportunity to get in on Bank of America’s stock at an even better price than it’s trading at today.