Bank of America Corporation

Transcription

1 Grade Earnings Last Earnings Release 10/13/2017 Last Qtr. Actual vs. Est. $0.48 / $0.46 Next Release 01/17/2018 $0.46 Year Ending 12/31/2016 $1.45 Quick Facts Dividend Yield 1.25% 52 Wk High $ Wk Low $22.05 Short Interest 1% of float $ /12/2018 Rated 'HOLD' since Dec 12th, 2017, when it was downgraded from 'BUY' Year Ending 12/31/2017 $1.64 Market Cap $325.3B Overview Acceptable Grades Put Stock Near BUY Rating MarketGrader currently has a HOLD rating on Bank of America Corporation (BAC), based on a final overall grade of scored by the company's fundamental analysis. scores at the 83rd percentile among all 5786 North American equities currently followed by MarketGrader. Our present rating dates to December 12, 2017, when it was downgraded from a BUY. Relative to the Major Banks sub-industry, which is comprised of 41 companies, Bank of America Corporation's grade of ranks tenth. The industry grade leader is Canadian Imperial Bank of Commerce (CM.CA) with an overall grade of The stock, up 30.28% in the last six months, has outperformed both the Major Banks group, up 15.3% and the S&P 500 Index, which has returned 12.65% in the same period. Please go to pages two and three of this report for a complete breakdown of BAC's fundamental analysis. Price, Rating and Sentiment History - 2 Years 1

2 Growth B+ Bank Shows Steady Growth Across Top and Bottom Line sales growth record showed a modest improvement in its latest quarterly Market Growth LT F report. Its total revenue increased 8.03% during the period to $25.38 billion from $23.50 billion booked in the year earlier quarter. This compares favorably to the company's 0.00% decline in 12-month trailing sales Market Growth ST B+ over a three year period. Including the latest quarter, had $98.60 billion in 12- month trailing sales compared to $98.60 billion in the comparable period ended three years ago. The latest Dividend Growth A+ improvement is not large enough to reverse a long term declining trend, something that will require one or EPS Growth A+ two more quarters of much better top line growth. It also reported strong profit gains from a year earlier and an excellent long term growth record when measuring full year results over a three year period. Its net Earnings Impact B income rose 12.75% to $5.59 billion in its most recent quarter from $4.96 billion (excluding extraordinary Earnings Surprise B+ items) in the year earlier period, while full year profit for the 12 months ended on September 30, 2017 of $20.41 billion was % higher than full year net of $5.22 billion reported three years earlier. The bank reported strong margin growth during its latest quarter, extending its recent expansion, albeit at a slower pace from the two preceding periods; its EBITDA, operating and net margins grew by an average of 21.18% compared to the same quarter a year before. The company's stock rose a moderate 3.10% after it reported earnings on October 13, 2017 that were 4.35% higher than what analysts were expecting. This report continues a remarkable trend of beating analysts' estimates consistently, having exceeded them by an average of 10.16% in the last six reports. While has consistently increased the dividends it pays its shareholders over the last one and three year periods, its three year growth is most impressive of the two. We calculate an average of both periods based on dividends paid in the last 12 months, in which we weigh one year growth more heavily than three year growth, thus putting more emphasis on the bank's current capital position. s increased its dividends per share by an impressive % in the last year when compared to three years ago and by a more modest 53.33% from a year ago, suggesting management is being cautious with the bank's capital. Growth Fundamentals Revenue Revenue Qtrly 09/30/2017 Revenue Qtrly Year Ago $25.4B $23.5B Revenue 1 Yr. Chg. 8.03% Revenue 12 mo. tr. Latest Revenue 12 mo. tr. 3Y Ago $98.6B $98.6B Revenue 12 mo. tr. 3Y Chg. (0%) Net Income Net Income Qtrly 09/30/2017 $5.6B Net Income Qtrly Year Ago $5B Net Income 1 Yr. Chg % Net Income 12 mo. tr. Latest Net Income 12 mo. tr. 3Y Ago $20.4B $5.2B Net Income 12 mo. tr. 3Y Chg % Cash Flow Cash Flow Qtrly 09/30/2017 $27.5B Cash Flow Qtrly Year Ago $2.3B Cash Flow 1 Yr. Chg. 1,118.29% Cash Flow 12 mo. tr. Latest $12.1B Cash Flow 12 mo. tr. 3 Yrs. Ago $26.2B Cash Flow 12 mo. tr. 3 Yr. Chg. (53.71%) Total Interest Income 09/30/2017 $14.7B Total Interest Expense 09/30/2017 $3.4B Cash on Hand 09/30/

3 Value B Assuming the Company's Fundamentals Don't Deteriorate in Coming Quarters, the Stock's Valuation is Acceptable at this Level Capital Ratio A+ Trading currently at times 12-month earnings per share, 's stock is priced inexpensively relative to its EPS growth rate in the last five years. Our indicator looks at the 12-month P/E Analysis A period ended in each quarter within the last five years and calculates the company's annualized growth rate, which is then used to compute the stock's "optimum" P/E. Based on this analysis, Bank of America Price/Book Ratio D Corporation's earnings per share have grown strongly at an annualized rate of 37.25%. which translates into Price/Cash Flow Ratio B- an optimum P/E ratio of 25.39, 42.76% higher than where the stock trades now. The combination of such a high growth rate with an apparent margin expansion probably means the bank has been gaining market Price/Sales Ratio B- share in recent quarters without sacrificing financial performance, evidenced by its superior overall Profitability grade. This combination offers a strong case for future gains in the stock price. The stock is also Market Value A- valued at times the company's forward earnings estimates for the next four quarters, which means that it trades below its trailing P/E and the market's forward P/E of (based on earnings estimates for the S&P 500). Therefore investors may see the current valuation as fully reflecting the company's EPS growth prospects and its current fundamentals. Shares of are trading at 1.34 times their book value, which is based on the company's stockholders' equity. However, MarketGrader's price to book value analysis is based on a company's tangible book value, which excludes goodwill and other intangibles from its assets. In this case, 's intangible assets of $ billion exceed its $ billion in stockholders' equity by $76.74 billion, which means its tangible book value is negative. This makes the shares' price to tangible book ratio meaningless. Thus, part of the risk of owning the company's shares lies in the possibility of a significant write-down of its intangible assets, which would automatically make its shares much more expensive than they currently appear to be. For a financial bank like Bank of America Corporation, whose assets are required to be marked to market regularly, the possibility of a write-down is higher than for a non-financial company, which increases the risk of ownings its shares given the high level of intangible assets it carries on its balance sheet. Our Price to Book Ratio indicator is calculated very differently for banks than it is for most other industries, mainly because our grade is not only dependent on the ratio itself. While two banks with identical ratios may seem, on the surface, equally expensive or inexpensive, there may be a very large difference in the amount of tangible equity each has for every outstanding share, making one a lot riskier (and expensive) than the other. Bank of America Corporation's $7.16 in tangible equity per share is % lower than the $4.68 per share average of all banks followed by MarketGrader. Investors are currently paying for the stock times the $1.13 in cash flow per share generated by the bank in the last four quarters, an excessive premium for its earnings prospects considering its poor fundamentals. Its price to sales ratio of 3.31 is slightly higher than the Major Banks's average of 2.67, both based on trailing 12-month sales. Our final value indicator looks at the relationship between the company's current market capitalization and its operating profits after deducting taxes. According to this indicator 's $ billion valuation is reasonable at times its most recent quarterly net income plus depreciation. Value Fundamentals Value Ratios P/E Ratio 12 mo. tr. 09/30/ Optimum P/E Ratio Forward P/E Ratio S&P 500 Forward P/E Ratio Price to (tangible) Book Ratio Price-to-Cash Flow Ratio Price-to-Sales Ratio

4 Profitability B While Company's Profitability Grades Are Pretty Solid, They Offer Plenty of Room for Improvement 's profitability grades are mixed, with a combination of very strong margins and a very poor return on equity, all based on 12-month trailing results. During this period not only did the Net Interest Margin B- company's operating margins surpass the industry average but the $20.41 billion it earned in profits Return on Assets C represent 20.70% of all revenue booked in the period, an excellent net profit margin. It also reported last quarter that net interest income represented 3.05% of its interest earning assets (averaged throughout the Operating Margins A- quarter), slightly ahead of the 2.78% reported in the equivalent period a year ago. This key profitability Relative Margins A- indicator, called net interest margin, measures what the bank earns from its loans and similar productive assets after accounting for the cost of funding them, primarily the interest it pays its depositors. Bank of Return on Equity D America Corporation's net interest margin is roughly in line with the average of all banks covered by Solvency Ratio A MarketGrader, currently 4.21%, and 2.58 percentage points above three month Libor, a commonly used benchmark of short term bank funding (based on interbank lending), an acceptable margin. Bank of America Corporation's poor return on equity of 7.48% based on what the bank earned over the last four quarters actually represents an improvement from the return on equity of 5.54% achieved in the 12 months ended a year earlier. This measure is important to MarketGrader in measuring profitability trends over time and the efficiency of company's management. Even though the bank's return on assets improved during the last 12 months to 0.91% from 0.70% in the equivalent period ended a year earlier, based on assets that averaged $2.25 trillion, such a poor result underscores its ongoing operating problems. The 12-month trailing bank average return on assets was 0.99%. reported that last quarter, which ended on September 30, 2017, it had an impressive Tier 1 capital ratio of 13.40%, higher than the 12.50% ratio from a year earlier and much better than the 11.01% average of all banks followed by MarketGrader. Tier 1, or Core capital, is a measure of risk-based capital used by regulators to estimate a bank's financial strength. It includes common stock plus non-cummulative preferred stock and it's measured as a percentage of risk weighted assets. While there are specific regulatory guidelines for banks to classify their assets according to their risk, investors shouldn't rely solely on this measure as banks can miscalculate or understate certain assets' risk, leaving it undercapitalized if assets once considered low risk suddenly become riskier as a result of unfavorable market conditions that makes them difficult to trade. Our bank analysis therefore incorporates other measures of financial strength and solvency and doesn't rely on just this metric. Nevertheless, ' core capital ratio is well above the 4% minimum required by regulators under the Basel accord international banking guidelines. The amount of non-performing assets on the bank's balance sheet is excellent, accounting for only 5.79% of its tangible equity plus its reserves for loan and asset losses, a number we refer to as the solvency ratio. More importantly, the current ratio is below the year ago level, which indicates the bank is managing its few troubled assets well and has a big enough cushion to withstand any future deterioration of other assets. The bank's solvency ratio is even more impressive when compared to the average of all banks followed by our system, in which non-performing assets represent 6.98% of their tangible equity plus their loss reserves. s' goodwill and other intangibles, which were excluded from our solvency ratio calculation, accounted for % of its tangible equity. Profitability Fundamentals Profitability Net Interest Margin 3.05% Net Interest Margin Yr. ago 2.78% Return on Assets 0.91% Return on Equity 12 mo. tr. 7.48% Dividend Growth 1Y Avg % Dividend Growth 3Y Avg % Dividend Yield 1.25% Balance Sheet Total Assets Total Assets Yr. Ago Goodwill Other Intangibles Tangible Assets Non-Performing Assets Reserves for Loan & Asset Losses Common Equity Tangible Equity $2,283.9B $2,195.3B $69.0B $257.9B $1,957.0B $11.0B $10.7B $250.1B ($76.7B) 4

5 Cash Flow B- While the Company's Cash Flow Indicators Are Mediocre They Don't Reveal Any Immediate Liquidity Problems 's cash flow grew considerably in its latest quarter to $27.51 billion, a Cash Flow Growth A+ 1,118.29% increase from $2.26 billion reported in the year earlier period. This is a marked improvement Tangible Com. Equity F from the 65.39% decline in cash flow in the last twelve months versus a year before and could represent a turning point for the company's operating profitability and its future earnings growth. Even though Bank of Loss Reserve Ratio C America Corporation was able to improve its capitalization level over the last year the bank continues to be Yield Analysis F excessively leveraged based on its tangible common equity ratio. As of last quarter the bank had $76.74 billion of tangible common equity supporting $1.96 trillion in tangible assets, or $25.50 in tangible assets for Interest Ratio A- every dollar of capital, an extreme level that will require it to raise significant amounts of new capital. Its tangible common equity ratio last quarter was 3.92%, slightly better than the 3.45% ratio of a year ago. This Dividend Yield C ratio reflects only common stock and it excludes goodwill and all other intangible assets, while Tier 1 capital, the basis of the capital ratio, which is closely followed by regulators, includes all common equity plus preferred stock and similar securities, many times overstating a bank's capital base. Even though the bank recently increased its loan and asset loss reserves and now has $0.98 for every dollar of non-performing assets compared to $0.81 in the third quarter of 2016, the latest comparable period reported of data available to us, this level is still extremely low. However, given that its $10.97 billion in non-performing assets account for a small portion of its tangible equity plus its reserves, as measured by our Solvency Ratio indicator, the bank seems comfortable with its current level of reserves, especially since boosting them would probably come at the expense of future earnings per share. <b> ** </b> The bank increased its quarterly common dividend on September 30, 2017 by 60.00%, to $0.120 cents a share from $0.075 cents. It has paid a dividend for at least 41 years and, based on this latest payout, the stock is currently yielding 1.25%. Bank of America Corporation spent $5.29 billion paying out common dividends in the last 12 months, equivalent to 43.56% of its total cash flow and 25.91% of what it earned after taxes. This payout ratio, which actually represents a small increase from the 23.99% of earnings paid out in the year ended a quarter earlier, appears sustainable as long as the bank maintains its generally strong fundamentals. Cash Flow Fundamentals Financial Strength Capital Ratio - Core 13.4% Capital Ratio - Total 15.1% Solvency Ratio 5.79% Tangible Common Equity Ratio (3.92%) Loss Reserve Ratio 0.98% Goodwill & Intangibles / Com. Equity % 5

6 Profile Bank of America Corp. operates as a bank holding company, which provides banking and nonbanking financial services and products through its banking and various nonbanking subsidiaries throughout the United States and in certain international markets. The company operates business through six business segments: Deposits, Global Card Services, Consumer Real Estate Services, Global Commercial Banking, Global Banking & Markets and Global Wealth & Investment Management. The Deposits business segment includes the results of consumer deposit activities which consist of a comprehensive range of products provided to consumers and small businesses. The Global Card Services business segment provides a broad offering of products, including U.S. consumer and business credit card, consumer lending, international credit card and debit card to consumers and small businesses. It provides credit card products to customers in the U.S., U.K., Canada, Ireland and Spain. The Consumer Real Estate Services business segment also known as Home Loans & Insurance segment. It includes the ongoing loan production activities, certain servicing activities, insurance operations and the consumer real estate services home equity portfolio. The Global Commercial Banking business segment provides a range of lending-related products and services, integrated working capital management and treasury solutions to clients through its network of offices and client relationship teams along with various product partners. The Global Banking & Markets business segment provides financial products, advisory services, financing, securities clearing, and settlement and custody services globally to institutional investor clients in support of their investing and trading activities. It also works with its commercial and corporate clients to provide debt and equity underwriting and distribution capabilities, merger-related and other advisory services, and risk management products using interest rate, equity, credit, currency and commodity derivatives, foreign exchange, fixed-income and mortgage-related products. The Global Wealth & Investment Management business segment consists of three primary businesses: Merrill MarketGrader Dilution Analysis Impact of Change in Shares on EPS - Q Dilution Summary *EPS Latest $0.48 *EPS Year Ago $0.40 EPS Change 1 Yr. 18% C. Shares - Latest(M) 10,725 C. Shares - Yr Ago(M) 11,000 C. Shares - 1Yr Chg. (2%) EPS if Yr. Ago Shares $0.47 EPS Chg. if Yr. Ago 15% EPS Loss from Dilution $0.01 *Earnings per share are based on fully diluted net income per share excluding extrodinary items. This number may not match the headline number reported by the company. Key Facts: 100 North Tryon Street Charlotte,NC Phone: Biggest Company in Sub-Industry Bank of America Corporati Grade Market Cap:$ billion Smallest Company in Sub-Industry Community First Bancshare Grade 22.7 Market Cap:$86.39 million Income Statement Last Qtr (09/2017) 12 Mo. Trailing Revenue $25.4B $98.6B Op. Income $8.0B $29.5B Net Income $5.6B $20.4B *EPS $ *Earnings per share are based on fully diluted net income per share excluding extrodinary items. This number may not match the headline number reported by the company. Balance Sheet Total Assets Total Debt Latest $2,283.9B $451.1B Stockholders Eq. $272.5B All numbers in millions except EPS Ratios Price/Earnings (12 mo. trailing) Price/Tangible Book Price/Cash Flow Price/Sales 3.31 Earnings Yield 0% Net Interest Margin 3.05% Return on Equity (12 mo. trailing) 7.48% Total Assets Intangible Assets Long Term Debt Total Debt Book Value Enterprise Value $2,283.9B $326.9B $224.4B $451.1B $250.1B $451.1B '13 '14 '15 '16 '17 Qtr Qtr Qtr Qtr Return on Assets (12 mo. trailing) 0.91% Capital Ratio - Core 13.40% Tangible Common Equity Ratio (3.92%) 6

7 Top Down Analysis Financials Stocks in Sector: 1208 Buys: 298 (24.67%) Holds: 274 (22.68%) Sells: 636 (52.65%) No. of stocks at: 52-Wk. High: Wk. Low: 46 Above 50 & 200-day MA: 673 Below 50 & 200-day MA: 315 Major Banks Stocks in Sub-Industry: 41 Buys: 9 (21.95%) Holds: 15 (36.59%) Sells: 17 (41.46%) No. of stocks at: 52-Wk. High: Wk. Low: 0 Above 50 & 200-day MA: 38 Below 50 & 200-day MA: 1 # Ticker Grade Sentiment Name Price Next EPS 1 NLY N Annaly Capital Management, Inc. $ /08/ CHP.UT N Choice Properties Real Estate Investment $ /21/ SPG P Simon Property Group, Inc. $ /31/ LAMR N Lamar Advertising Company Class A $ /21/ DX N Dynex Capital, Inc. $ /21/ IVR N Invesco Mortgage Capital Inc. $ /20/ CHMI N Cherry Hill Mortgage Investment Corp. $ /09/ PZN P Pzena Investment Management, Inc. $ /24/ PK N Park Hotels & Resorts, Inc. $ /29/ PCH N Potlatch Corporation $ /24/ BAC 0 P $ /17/2018 # Ticker Grade Sentiment Name Price Next EPS 1 CM.CA N Canadian Imperial Bank of Commerce $ /01/ HOPE N Hope Bancorp, Inc. $ /23/ CMA P Comerica Incorporated $ /18/ PEBO N Peoples Bancorp Inc. $ /23/ TD.CA N Toronto-Dominion Bank $ /01/ CM P Canadian Imperial Bank of Commerce $ /01/ KEY P KeyCorp $ /24/ USB P U.S. Bancorp $ /17/ TD P Toronto-Dominion Bank $ /01/ BAC 0 P $ /17/ Price Trend. A 2. Price Momentum. B 3. Earnings Guidance. B+ 4. Short Interest. A- 8.5 Copyright 2010 MarketGrader.com Corp. All rights reserved. Any unauthorized use or disclosure is prohibited. Neither the information nor any opinion expressed constitutes an offer to buy or sell any securities or any options, futures or other derivatives related to such securities ("related investments"). The information herein was obtained from various sources; we do not guarantee its accuracy or completeness. This research report is prepared for general circulation and is circulated for general information only. It does not have regards to the specific investment objectives, financial situation and the particular needs of any specific person who may receive this report. Investors should seek financial advice regarding the appropriateness of investing in any securities or investment strategies discussed or recommended in this report and should understand that statements regarding future prospects may not be realized. Investors should note that income from such securities, if any, may fluctuate and that each security's price or value may rise or fall. Accordingly, investors may receive back less than originally invested. Past performance is not necessarily a guide to future performance. Future returns are not guaranteed, and a loss of original capital may occur. MarketGrader does not make markets in any of the securities mentioned in this report. MarketGrader does not have any investment banking relationships. MarketGrader and its employees may have long/short positions or holdings in the securities or other related investments of companies mentioned herein. Officers or Directors of MarketGrader.com Corp. are not employees of covered companies. MarketGrader or any of its employees do not own shares equal to one percent or more of the company in this report. 7