Bank of America (BAC) Tops Estimates; Looking Solid amid Low Valuations

Bank of America (NYSE:BAC) has beaten both revenue and earnings estimate for the third quarter by $700 million and $0.08 a share, respectively. BAC has also outperformed its peer group, including Citigroup (NYSE:C) and Wells Fargo (NYSE:WFC) in the third quarter, based on revenue and earnings growth.

Citigroup’s earnings plunged 24% and Wells Fargo earnings declined at a high single-digit rate, while BAC has generated positive earnings growth of 7% in the latest quarter this year.

In the third quarter, Bank of America has generated revenue growth of 3% to $21.6 billion, compared with the same period of last year. The bank’s net income also enlarged 7% to $5B, compared with 4.6 billion in the same period last year.

BAC has generated a notable growth in both average loans and deposits over the same period of last year. Its loan balances increased 3% to $905 billion and deposit balances surged 6% to $1.23 trillion, compared with the third quarter of 2016. Its consumer banking net income increased to $1.813B, while noninterest expense declined to $4.371B.

Its CEO said “We delivered strong results this quarter by staying true to our strategy of responsible growth and focusing on the quality of the relationships with our customers and clients. We grew revenue, reduced expenses and continued to manage risk, resulting in a 17 percent increase in pretax earnings.”

Despite a strong financial performance, the bank’s stock is trading at a steep discount based on its book value and tangible book value. At present, its stock trades around $16 a share, when its book value per share stands around $24 a share and tangible book value per share at $17.14 a share.

Bank of America’s stock continues to trade below the levels where the stock ended 2015. With the consistent growth in earnings and stagnant growth in share price, Bank of America’s stock looks undervalued.

BAC appears to be a good stock to buy trading around only 13 times to earnings and 0.68 times to book ratio. In addition, the expected growth in the Fed’s rate by the end of this year could also provide additional support for its financial and share price performance.

DISCLAIMER: The author does not hold any positions in any of the above companies.

Alexander is an analyst for who specializes in index and commodity trading. His outlook is usually near-term to medium-term. He has over 10 years of experience in the financial industry and began his career at the dealing desk. Alexander holds a Bachelor’s degree in Economics from University of Delaware.