Bank of America Stock Price Forecast August 2021 – Time to Buy BAC?

Banking stocks have been strong in 2021 and have outperformed the S&P 500. Bank of America (BAC) stock is up 38% for the year and is trading near its 52-week highs of $43.49. What’s the forecast for BAC stock and is it a good buy now?

Banking stocks are cyclical in nature. US banks had to make higher loan loss provisions last year amid the economic downturn. Also, as the rates plunged after the historic easing by the US Federal Reserve, banks saw a contraction in net income margins. However, 2021 has been a different ballgame for banking stocks. The US economy has rebounded sharply from the 2020 lows and after easing in 2020, we are now staring at a gradual rollback of the accommodative easing policy.

Recent developments

All eyes will be on the Fed’s annual Jackson Hole symposium where central banks from across the world have gathered. Markets would be particularly interested in what Fed chair Jerome Powell says in his speech which is scheduled for 10 AM ET. Some Fed officials have backed calls for a gradual rollback of the bond buying program, which is currently at $120 billion per month. US treasury yields are firming up today amid expectations that the Fed might start with the tapering process sooner than later.

Antoine Lesne, head of SPDR ETF strategy & research, EMEA believes that the Fed would start discussing tapering at the September policy meet and start the process by the end of this year. He however does not expect rate hikes anytime this year.

Fed’s policy actions are of great importance for the banking sector. Generally, rate hikes are good for banks as they can then charge higher interest on their advances. The banking industry revolves around borrowing on the short end of the curve and lending on the long end. If long-term rates rise and the yield curve steepens, lenders like Bank of America stand to benefit.

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Bank of America Stock Price earnings

Bank of America had posted mixed second-quarter earnings. While its revenues of $21.6 billion fell short of the $21.8 billion that analysts were projecting, its adjusted EPS of $0.80 was ahead of the consensus estimate of $0.77. The reported a credit loss benefit of $1.6 billion in the quarter as it released reserves amid the improving economic outlook. Meanwhile, the stock had fallen after the earnings release as its net interest income and trading revenues disappointed markets.

Warren Buffett is bullish on BAC stock

Berkshire Hathaway is the largest shareholder of BAC stock. The Oracle of Omaha, as Buffett is known, made an exception for the stock by increasing the conglomerate’s stake in the bank beyond 10%. He has tried to limit the stake in banks below 10% to escape regulatory scrutiny. Notably, while Berkshire Hathaway has exited banks like JPMorgan Chase and Goldman Sachs, it is holding on to Bank of America stock and it is now the second-largest holding for the company.

Bank of America stock forecast

Wall Street analysts have a split rating on Bank of America stock. Of the 27 analysts polled by CNN Business, 17 rate the stock as a buy while eight rate them as a hold. The remaining two analysts have a sell rating on BAC. Its median target price of $44 is a 5.2% premium over current prices. However, its street high target price of $52 is a premium of over 52%.

There hasn’t been any recent analyst action. However, in June, Wells Fargo had reiterated BAC stock 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,” it said in its note.

BAC stock technical analysis

Bank of America stock is looking bullish technically. The stock has found strong support at the 50-day SMA (simple moving average). It also trades above the 100-day and 200-day SMA which is a bullish technical indicator. The MACD (moving average convergence divergence) also gives a buy signal while the 14-day RSI (relative strength index) is a neutral indicator.

Bank of America stock looks attractive

Looking at the valuations, Bank of America trades at an NTM (next-12 months) PE multiple of 14.3x. The multiple has averaged around 12x over the last three-year, five-year, and ten-year periods. BAC stock trades at a price-to-book-value per share of 1.39x. Generally, multiples below 1 are seen as a sign of undervaluation, while multiples way beyond 1x are seen as a sign of overvaluation. That said, the entire banking sector has seen a valuation rerating. While Bank of America’s valuation is higher than the historical average, the multiples don’t seem too high for comfort.

Overall, BAC looks like a good stock to buy at these levels and hold for the long term. The continued economic recovery bodes well for the stock. As the US Fed gradually starts to raise rates over the next couple of years, it will help boost net interest margins for lenders like Bank of America.

BAC stock was trading marginally higher in US premarket price action today even as stock futures point to a slightly lower opening for US markets today.

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