Bank of America: Clear Buy After Q2 Shows Net Interest Income Accelerating

(Preview) Company Update (BAC US) (Buy)

Summary

• BAC stock has a 10x P/E and a 2.7% Dividend Yield after losing 27% year-to-date. Q2 results showed it is too cheap at 1.5x Tangible Book.

• Excluding credit provisions and tax, profits were up 15.5% year-on-year in Q2; Return on Tangible Common Equity was 14.1%.

• Net Interest Income grew strongly, thanks to good loan growth and higher rates, and guided to accelerate further in Q3 and Q4.

• Expenses were flattish, credit losses were limited. Dividend hikes and buybacks are continuing despite higher capital requirements.

• With shares at $32.26, we expect an exit price of $56 and a total return of 87% (20.7% annualized) by the end of 2025. Buy.

Introduction

Bank of America released Q2 2022 results on Monday (July 18). BAC stock finished the day roughly flat (up 0.2%), having already rebounded by 7.0% on Friday.

Q2 results support our investment case, with Return on Tangible Common Equity at 14.1% after a minimal reserve release. Net Interest Income grew strongly with good loan growth and highe…