Bank Of America Will Skyrocket
Shazir is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Only a company that is "tough as nails" survives a recession as great as the one that we went through, I am not going to lie 2008 was tough but Bank of America (NYSE: BAC) got through it, with its lawsuits, mortgage losses, and its merger expenses. Bank of America has shown strength that most companies have not shown. Not only has it gotten rid of most of its lawsuits but it has increased its net income applicable to common shares by about $2 billion. Since that period in time, Bank of America has grown, and it has become smarter as a financial company. With these reasons and some others listed below, Bank of America will be able to hit new EPS highs.
Bank of America's subsidiaries continue to grow. In fact one of its major subsidiaries Merill Edge reported an increase of 40% in brokerage assets, which is a very good indicator for future growth. Bank of America also stated that their consumer deposits continue to grow. As you all are aware Bank of America just reported earnings, and they were golden. Everything continued to show Bank of America's progress of getting back in the game after the recession of 2008. The only reason Bank of America's earnings were not higher was because of certain obstacles, such as lawsuit expenses. Lawsuits have taken over Bank of America's ability to operate as a conglomerate, it just cannot simply work with a bunch of attorney hovering over its head, so now all it needs to do is get rid of pending lawsuits and increase revenue. If Bank of America can carry out these goals it will increase its market share as well as its market capitalization, which would in turn give you, the shareholder, more money. Bank of America has proven this before back in 2009, when it tumbled to about $3.50/share, since that time period Bank of America has nearly quadrupled per share.
With all of this being said Bank of America will also continue to grow, due to the housing market, the economy itself, and other ripple effect factors. Bank of America has also said that it has put most of its lawsuits behind.
Bank of America has shown phenomenal growth when compared to these companies. Below are some facts that will prove this.
JP Morgan Chase & Co. (NYSE: JPM)
Even though JP Morgan is a bigger company than Bank of America, has more potential. JP Morgan Chase has had a long history of lawsuits, just like Bank of America; however, Bank of America's lawsuits are almost over. After the 2008 debacle, Bank of America's stock price has nearly got up by more than $10, while JP Morgan has gone up, but not as much percent wise.
Citigroup (NYSE: C)
According to the market capitalization of Citigroup, it is as big as Bank of America. As true as this may sound, this is not the case. Even though Citigroup's fundamentals are stronger, Bank of America is stronger as a company. A bunch of reasons contribute to its fundamentals not being as good, and example of this may be lawsuit troubles. All bank of America needs is a gentle push, and then it would surpass all of these companies.
According to the analysis of Validea a renowned stock analysis company, Bank of America has a buy rating of 57%; the financial company passes all but seven aspects of the formula, all though it fails some it passes the major ones such as institutional ownership. Institutional ownership is good here because they own more than 50% of the stock; however, please do keep in mind that this is one person, and this may not be true. There are many other analysts that disagree with Validea, and believe that Bank of America is a 100% buy, and is at a very good price, and some there are others that believe it is a 100% sell. Looking at Bank of America's Fundamentals, it has several positives. The company has a forward P/E of about 9, it has a net profit margin of 5%, and it is trading for approximately 50% of book value. Bank of America's EPS is expected to rise more than 30%. With all of these factors Bank of America will be able to capture back its market share.
Bank of America is no longer on the verge of bankruptcy. Bank of America's balance sheets look good according to their quarterly report. They are working on paying off long term debt, they now have $282 billion in long term debt. This means that each dollar of revenue is costing them less in interest expense, obviously meaning that they can become more profitable. From this point of view Bank of America is not slowing down, in fact it is gaining traction everyday. Bank of America's current target price is $15/share, which is about $3.5/share away from where it is out now. Although, Bank of America's revenue has gone massively down within the last three years, analysts and the bank are predicting that the bank's earnings will skyrocket. Bank of America's total liabilities also fell by about $150 billion, this is due to a decrease in accounts payable. Another side note is, Bank of America has the largest discount to the book value of its equity compared to other banks. As a whole, Bank of America's fundamentals have improved five-fold, and are going to continue to improve.
Going forward Bank of America should be a solid financial company to invest in, with its golden income statement and its estimated EPS. This company should be a safe bet; however, there still might be some other risk factors involved such as major litigations, and other fraud related lawsuits. Also please keep in mind that Bank of America has rallied on the fact that it won most of its lawsuits, its major win was the Afiliated Fund Use lawsuit, where it was being accused of violating employee rights; however, if another one arises then Bank of America would be back where it started at in 2009.
Shazir Mucklai has no position in any stocks mentioned. The Motley Fool owns shares of Bank of America, Citigroup Inc , and JPMorgan Chase & Co.. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!