Bank of America Stock Is Up 33% in 2021 – Time to Buy BAC?

2021 is turning out to be a good year for banking stocks. Bank of America (BAC), which is the second-largest US bank after JPMorgan Chase, is up over 33% so far in 2021. Should you buy BAC stock and bet on more upside?

Bank stocks are cyclical in nature and tend to fall sharply in an economic downcycle. Not only do their revenues fall in a recession but they also face high loan losses. However, looking at the current scenario, we are in a strong economic environment. To add to that, the current interest rate environment bodes well for banks. Banks borrow on the short end of the curve and lend on the long end. While the yields on long-term bonds have come down from the peaks, they should go up in the medium term considering the interest rate outlook provided by the US Federal Reserve during the most recent meeting.

Bank of America technical analysis

Bank of America stock is looking bearish on the charts. It was trading between the 50-day and 100-day SMA (simple moving average) which were strong resistance and support channel for the stock respectively. However, now it has fallen below the 100-day SMA and breached a key support zone. The stock has also fallen below the short-term moving averages including the 10-day, 20-day, and 30-day SMA. The 12,26 MACD (moving average convergence divergence) also gives a sell indicator. However, its 14-day RSI is 44.7 which is a neutral indicator and indicates neither oversold nor overbought positions.

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BAC earnings

This week several leading US banks including Bank of America, Wells Fargo, and Goldman Sachs will release their quarterly earnings. While bank earnings always attract a great deal of attention, it will be even more so this time as they are expected to take a call on the dividends and share repurchases. Meanwhile, Bank of America has already announced that it plans to increase its quarterly dividend to $0.21 per share—17% higher than the previous dividend. The dividend would imply a yield of around 2.2% which is higher than the S&P 500’s dividend yield.

Meanwhile, analysts expect BAC to report revenues of $21.7 billion in the second quarter which would mean a year-over-year fall of 3.1%. However, the company’s EPS is expected to more than double to $0.77 in the quarter.

Bank of America stock price forecast

Of the 27 analysts polled by CNN Business, 17 have rated Bank of America stock as a buy while seven rate them as a hold. The remaining three analysts have a sell rating on BAC stock. It has a median target price of $44 which is a premium of almost 10% over current prices. Its lowest target price of $35 implies a downside of 12.6% while the highest target price of $52 is a premium of almost 30% over current prices.

Earlier this month, RBC reiterated its buy rating on BAC and assigned a street-high $44 target price. Evercore ISI also reiterated its buy rating with a $43 target price. Keefe, Bruyette & Woods initiated coverage on Bank of America with a market perform rating and $43.87 target price.

Wells Fargo is bullish on BAC

Last month, Wells Fargo reiterated Bank of America as a top pick. “BAC remains our #1 stock pick given its cyclical positioning to the recovery and structural benefits from technology and ‘responsible growth.’ … Continued visibility by the CEO In our view, BAC’s performance is night-and-day different vs. the last recession,” said Wells Fargo analysts in their note.

Bank of America valuation

Bank of America stock trades at an NTM (next-12 months) PE multiple of 13.7x. The multiple ahs averaged 14.2x, 11.9x, and 12.1x over the last one year, three years, and five-year timeframes. While the current valuations are higher than the historical average, they should be seen in the light of the current economic environment, expansion of broader market valuation multiples, and the prevailing interest rate environment, all of which are supportive of higher-than-average multiples for BAC stock.

Bank of America’s price to book value multiple is 1.38x which is also above the historical average. Generally, for banks, a price to book value multiple of below 1x is a sign of undervaluation. That said, banks like Goldman Sachs and Bank of America are trading above that level given the rising fee income from activities like investment banking.

Warren Buffett loves BAC stock

Berkshire Hathaway chairman Warren Buffett is also in love with Bank of America stock. The conglomerate holds a 12.1% stake in BAC which makes it the second-largest holding after Apple. Generally, Buffett has tried to limit the exposure in banks to 10% however he has made an exception for Bank of America. Also, while he has exited banks like JPMorgan Chase and Goldman Sachs and sold most of the shares in Wells Fargo, he has increased the stake in BAC over the last year.

Overall, Bank of America stock looks like a good way to play the economic rebound. The stock looks like a good buy at these prices if you are willing to take a medium-term view of the sector.

BAC stock was trading marginally lower in premarkets today as the stock futures point to a weak opening for US stock markets. The stock has a 52-week trading range of $22.68-$43.69.

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