Bank of America: Stable Business in Q4 Underneath Moving Parts

Company Update (BAC US) (Buy)

Q4 showed stability; shares can rise further after the 31% rebound since October.

Highlights

• BAC shares are at 1.34x TBV; we believe this implies a 10x P/E

• ROTCE was 11.7% in Q4 and 15.0% in 2023 excluding one-offs

• Deposits are stabilizing; NII should start growing in H2 2024

• We expect long-term low-teens ROTCE and P/E re-rating to 12.5x

• At $32.80, we see total return of 58% (15.8% p.a.) by end of 2026

Introduction

Bank of America (“BAC”) released Q4 2023 results on Friday (January 12). Shares finished the day down 1%:

Bank of America Share Price (Last 1 Year)

Source: Google Finance (14-Jan-24).

BAC shares have been one of our more disappointing holdings, gaining just 4.1% (including dividends) during 2023. Since we initiated a Buy rating on the stock in 2019, BAC shares have gained just 30.2% in slightly over 4 years.

Q4 2023 results support our expectations of a long-term, across-the-cycle average Return on Tangible Common Equity (“ROTCE”) in the low teens. Excluding two one-offs, ROTCE was 15.…