Bank of America Corp (BAC): Are Wall Street’s Fears Justified?

Bank of America Corp (NYSE:BAC) is down approximately 2.24% over the last 24 months as investors are slowly realizing that the factors, which boosted the stock earlier this year, had no meat. Bank of America stock skyrocketed earlier this year following the election of President Trump as investors had hoped that the Don will cut taxes and initiate banks-friendly policies. But the Trump administration has shown no activity in the implementation of the promised policies. There is almost no change in the long-term interest rates. The government is also not moving to repeal or reform the Dodd-Frank regulation. These factors are taking a direct toll on Bank of America Corp (NYSE:BAC) growth trajectory. The upcoming Fed chairman Jerome Powell is already a strong supporter of Federal Reserve’s current policy of slow and low rates hike despite the economic growth.

Bank of America Corp (NYSE:BAC) management had been wooing investors by arguing consistently that President Trump’s expected spending on infrastructure and increasing inflation will help the bank. But those arguments are losing steam. In the third quarter, net interest yield (return on loads and investments) came in at just 2.36%, which is disappointing when compared with earlier quarters.

But the fundamentals of Bank of America Corp (NYSE:BAC) remain strong. The company posted decent quarter results last month. The stock has gained about 25% since the start of this year. Bank of America is the second biggest bank in the US in terms of assets. The bank has a $2.28 trillion worth of assets. In the third quarter, consumer banking revenues increased by 10% year over year. Net interest income came in at $11.4 billion, versus the consensus of $11.3 billion. However, lending at Bank of America grew by just 2.4%, showing a decline when compared to the same quarter last year.

Bank of America Corp (NYSE:BAC)

Bank of America Corp (NYSE:BAC) has been successful in cutting its expenses. In 2016, the bank brought down its total non-interest expense to $55 billion. By the end of next year, the company plans to dwindle its expenses to $53 billion. Bank of America’s efficiency ratio is consistently coming in at 60%, which means that the bank spends not more than 60% of its revenues in expenses.

Bank of America Corp (NYSE:BAC) stock is attractively valued. The stock is currently price at about 15.8 times the expected earnings over the next one year, compared to the industry average of 16.9 time. Bank of America has an excellent dividend payout ratio of 26.7%, which dwarfs almost all of its competitors.