Bank Of America: Strong Operating Trends Continued In Q2 (Preview)

Company Update (BAC US) (Buy)

Summary

• BAC stock has lost 5% since Q2 2021 results last week, but we believe the long-term case for a low-teens annualized return remains intact.

• Despite a fall in yields during Q2, Net Interest Income was again stable, and loan growth resumed for the first time since the pandemic.

• Non-Interest Revenues remained strong, thanks to a #3 ranking in global investment banking fees and more capital being used in trading.

• Costs remained under control and we believe Return on Tangible Common Equity could reach 16% with rates just returning to 2019 levels.

• With shares at $37.92, we expect an exit price of $55 and a total return of 58% (14.8% annualized; 2.2% Dividend Yield) by 2024.

Introduction

We review our Bank of America investment case after Q2 2021 results last Wednesday (July 14). Shares have fallen 4.9% since.

Our key assumption has been that BAC’s 2024 Return on Tangible Common Equity ("ROTCE") will be 16%, similar to 2018 and 2019. We believe that the 16% ROTCE will be achieved on a Tangibl…