Given that Bank of America's (NYSE: BAC) shares have climbed more than 50% since the presidential election in November, you'd be excused for thinking that Wall Street analysts have cooled on its stock. Yet, just as they were a year ago, analysts remain bullish on the North Carolina-based bank's prospects.
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To get a sense for what analysts think about Bank of America, all you need to do is toggle over to Yahoo! Finance. Of the 33 analysts tracked by the investing website, none of them recommend selling the stock.
In fact, not only do they not recommend selling, but a majority of analysts think you should still buy Bank of America, according to Yahoo! Finance. All told, 26 of the 33 analysts continue to say it's worth buying, with eight characterizing it as a "strong buy." The remaining seven rate it a "hold."
Data source: Yahoo! Finance. Chart by author.
The one catch is that the average price target for Bank of America's stock is $25.01 per share. That's below its current price of $25.21 per share, which seems to suggest that analysts simply haven't updated their ratings.
Either way, it's impossible to deny that Bank of America has a number of tailwinds that could boost its earnings in the next few years.
The first thing in Bank of America's favor is the upward trend in its earnings. Since the financial crisis, the bank's net income has been all over the board, oscillating widely between substantial losses and mediocre earnings. This trend began to stabilize at the beginning of 2015, however, and is now on a gradual upward slope.
One thing that will help is that Bank of America is still in the process of cutting expenses. Since 2011, its core costs on an annual basis have dropped from $61.7 billion down to $53.8 billion. And if you include litigation and other expenses tied to the financial crisis, its annual expense base has declined by nearly $20 billion.
On top of this, CEO Brian Moynihan promised last year that the bank would slice an additional $3 billion more off its annual expenses by the end of 2018. Assuming that this doesn't impair the bank's revenue, most of these savings should trickle down to the bottom line.
Bank of America Chairman and CEO Brian Moynihan. Image source: Bank of America.
Finally, with each passing day, it seems increasingly likely that the Federal Reserve will raise interest rates. This would be a coup for Bank of America, which, like most other banks, earns more money as interest rates climb.
Thanks to the Fed's rate hike in December, as well as the surge in long-term rates following the presidential election, Bank of America's net interest income is already expected to increase by $600 million a quarter this year. And if the Fed follows through with its projected three interest rate increases this year, the quarterly benefit to Bank of America could double.
The net result is that, even if Bank of America's stock may be riding an unsustainable wave of post-election expectations, the bank's long-term fundamentals look very promising.
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