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Is Bank of America still a buy?

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October 23, 2016 – Comments (0) | RELATED TICKERS: BAC

Bank of America (BAC) is up 6.8% over the last month and about 15.9% over the last three months (Source: Yahoo Finance). After this run-up in the stock price is there still room to go higher? This analysis bases its buy recommendation of BAC on BAC’s valuation and financial performance in comparison to 16 Banks falling into Zacks industry grouping called Banking Major Regional and financial information also reported by Zacks on 10/22/16. The 16 banks included the likes of Wells Fargo, JP Morgan, and US Bank. BAC stock sells at a discount generally to its competitors based on the following metrics:

·         P/E – BAC 11.71 (Ranked 3rd out of 16)

·         PEG Ratio –  BAC 1.67 (Ranked 6th out of 16)

·         Price-to-Book – BAC 0.69 (Ranked 2nd out of 16)

Source: Zacks

The lower valuation may be justified if BAC underperformed or is expected to underperform the sector moving forward. Below are the following growth/profitability measures of BAC versus its 15 peers:

·         Long Term EPS consensus growth – BAC 7% (Ranked 7th out of 16)

·         5-year average Sales growth rate – BAC -2.95% (Ranked 15th out of 16)

·         5-year average EPS growth rate – BAC 21.4% (Ranked 1st out of 16)

Source: Zacks

Based on the 5-year average earnings growth, BAC has outperformed its more expensive peers. BAC is anticipated to be in the middle of the 16 banks included in the ranking regarding long-term EPS growth. One area BAC is underperforming is sales growth as measured by the 5-year average sales growth. The higher revenue growth of BAC’s peers could be viewed as an opportunity for higher future earnings growth and justify their higher valuations.

Based on current valuation and recent performance it appears BAC is undervalued in comparison to its 15 peers right now. 

Disclosure: I am currently long BAC stock and plan to hold on to this stock for the long-term.

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