Bank of America’s BAC shares have rallied 43% so far this year, outperforming the industry’s rise of 34.6%. This marks a significant turnaround from dismal 2018 performance, wherein the stock had lost 16.6%.
Wondering what led to the reversal? Well, BofA’s financial performance has remained decent this year despite a challenging operating backdrop.
The banking industry as a whole faced several concerns, including the Federal Reserve cutting interest rates thrice, muted loan demand and weak capital markets performance in the first half.
Also, geopolitical matters like the U.S.-China trade conflict and uncertainty over Brexit persisted. BofA did not remain untouched by these adverse factors. Nonetheless, the company still projects net interest income to be up nearly 1% for 2019, based on the assumption of flattish yield curve, three rate cuts this year, and modest loan and deposit growth.
Also, management anticipates operating expenses to decline marginally for 2019.
Year to Date Price Performance
Further, the Zacks Consensus Estimate for earnings has moved marginally upward to $2.69 for 2019. This suggests 3.1% increase from the year-ago reported number. Moreover, the consensus estimate of $3.01 for 2020 indicates 12.1% growth.
So, what is expected to drive the stock in 2020?
BofA is likely to continue benefiting from steady rise in loan demand, steepening of yield curve, solid deposit base and strong domestic economy. This will support the bank’s net interest income in the coming year, amid the Fed’s accommodative monetary policy.
Further, positive developments on geopolitical matters are likely to drive up capital markets performance. Thus, both trading and investment banking operations are expected to perform decently. Also, low rates are likely to increase mortgage originations and refinancing activities. Hence, BofA’s fee income growth will likely be modest in 2020.
Additionally, this Zacks Rank #3 (Hold) bank is focused on improving operating efficiency and aligning its banking center network according to customer needs. BofA is on track to open 500 new centers in new cities and redesign 2,500 centers with technology upgrades by 2021. Further, the company plans to add 2,200 more ATMs to its network. These efforts, along with launching of Zelle and Erica, have enabled it to improve digital offerings and cross sell products.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Despite undertaking these initiatives, BofA is likely to be able to control expenses. Management expects non-interest expenses for 2020 to decline on a year-over-year basis.
Also, BofA’s sturdy capital deployment activities look impressive. In June, the company along with other banks like JPMorgan JPM, Citigroup C and Wells Fargo WFC received the Fed’s approval for 2019 capital plan.
The company’s plan included a 20% dividend hike and a share-repurchase authorization worth $30.9 billion. So, in aggregate, the bank intends to return roughly $37 billion to shareholders. Given the robust capital position and lower dividend payout ratio compared to its peers, BofA is likely to be able sustain its capital deployment activities and continue enhancing shareholder value.
Zacks Top 10 Stocks for 2020
In addition to the stocks discussed above, would you like to know about our 10 top tickers for the entirety of 2020?
These 10 are painstakingly hand-picked from over 4,000 companies covered by the Zacks Rank. They are our primary picks to buy and hold. Start Your Access to the New Zacks Top 10 Stocks >>
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
Citigroup Inc. (C) : Free Stock Analysis Report
Wells Fargo & Company (WFC) : Free Stock Analysis Report
JPMorgan Chase & Co. (JPM) : Free Stock Analysis Report
Bank of America Corporation (BAC) : Free Stock Analysis Report
To read this article on Zacks.com click here.
Zacks Investment Research