Bank of America: Stable Q3, 8.5x P/E Even with Basel III Endgame

Company Update (BAC US) (Buy)

Highlights

• Deposits, Net Interest Margin and NII were all flattish q/q in Q3.

• NII will decline modestly, but IB Fees and Expenses should improve.

• YTD credit costs comparable to 2019; ROTCE of 16.1% is representative.

• Basel III impact is less than the 20% headline due to excess capital now.

• At $27.31, we see total return of 91% (23.5% p.a.) by end of 2026.

Introduction

Bank of America (“BAC”) released Q3 2023 results on Tuesday (October 17). Shares are up 1.2% in the following two days and remain more than 40% below their last peak in January 2022:

Bank of America Share Price (Last 5 Years)

Source: Google Finance (18-Oct-23).

We believe BAC is a business with solid earnings, good growth and a valuation of less than 10x P/E, implying significant re-rating potential.

BAC had another stable quarter, with a Return on Tangible Common Equity (“ROTCE”) of 15.5% in Q3 (and 16.1% year-to-date). Deposits, Net Interest Margin and Net Interest Income (“NII”) were all flattish sequentially. While NII is eleva…