Bank of America (BAC)
Banca / Servicios financieros
The 2nd-largest US bank: ROTCE ~15.7%, solid balance sheet (CET1 11.4%), the largest low-cost deposit franchise after JPM and four diversified segments. But it rallied from the low ($44.75) to the high (~$62) → trades at price/tangible book 2× (above its own history). Fairly valued: the return comes from recovering net interest income + buybacks + the dividend (~1.85%), with the re-rated multiple leaving little margin.
- Price
- $62.28
- Intrinsic value (5y, base)
- $73
- Total annual return (5y)
- 5.3%
- Status (nominal)
- Fairly valued
- Margin of safety
- +4%
The essentials
- The 2nd-largest US bank: $3.5tn of assets, $2.0tn of deposits, ~$300bn of equity. Four segments — Consumer Banking (the engine, $12.2bn of profit), GWIM/Merrill, Global Banking, Global Markets. ROTCE ~15.7% (solid, though below JPM's ~20%). Buffett/Berkshire still holds ~7.9%.
- The growth engine is the recovery in net interest income (NII $56.1bn→$60.1bn, with the FTE margin rising to 2.01%, +6bp) + massive buybacks (~$21bn/year, shares −4%/year). Benign credit (charge-offs 0.50%, coverage 228%), CET1 11.4% (~140bp above the minimum).
- Rallied ~35% from the low ($44.75→~$62): re-rated to price/tangible book 2× (30% above its 10-year median) and P/E ~14× trailing → Fairly valued. Still trades at a discount to JPM (3.27×) but is no longer cheap in absolute terms. ⚠️ Rate sensitivity is asymmetric: an instant 100bp hike adds only $0.7bn of net interest income over 12 months, while a 100bp cut subtracts $2.0bn; the underwater bond portfolio (−$80bn HTM) amortizes on its own (it doesn't hit capital).
Intrinsic value — two valuation methods
Total return at 5 years: 5.3%/year = 3.2% appreciation + 2.1% dividend. The target price ($73) is ex-dividend; the $7 in dividends collected over 5 years are added separately.
By both methods, the value today (DCF $121 · Multiples $65) exceeds the market price ($62).
Pillars of the analysis
The verdict — today vs 5 years
Today — fairly valued: at $62 trades ~3.5% below its value discounted to today (~$65); the discount is positive but does not reach the margin of safety we require (≥38%).
At 5 years — En valor: the target price ($73) plus dividends yield between the 4% floor and the 10% average return — a reasonable return, though without the margin of a great investment.
The bridge: the return at 5 years exceeds the risk-free rate (4.5%) — but the discount does not reach the required margin of safety (≥38%). To require a 15% annual return, it would need to be bought at ~$41.
Thesis
The business
Bank of America is a quality universal bank: the 2nd-largest in the US, with the 2nd-largest low-cost deposit franchise, four diversified segments, a solid balance sheet (CET1 11.4%) and benign credit. Its ROTCE of ~15.7% is solid though a notch below JPM's (~20%), weighed down by the low-rate bond portfolio. Buffett/Berkshire has held it for years (~7.9%). It's not a broken or disrupted business; it's a mature, stable franchise recovering its profitability.
The valuation
It is valued on equity (normalized P/E on earnings to common plus P/tangible book), not by EV: deposits and debt are funding. The base case projects a value of ~$73 per share over five years, an annual return of ~+5% from today's ~$62.
The key: BAC rallied ~35% from the low ($44.75 → ~$62, near the high) and re-rated to P/tangible book 2× (30% above its 10-year median of 1.59×) and P/E ~14× trailing. It is no longer cheap in absolute terms —though it still trades at a discount to JPM (3.27×)—. The return comes from earnings growing ~7% (recovering interest income plus the buyback reducing the share count ~3-4%/year) plus the dividend (~1.85%), with the re-rated multiple leaving little margin; as earnings grow and the multiple compresses toward ~12× (~10×), appreciation is modest.
The margin of safety
The verdict is Fairly valued: It trades close to intrinsic value, far from the required margin of safety.. The 2026 rally closed the discount: at ~$62 BAC trades at P/tangible book 2× —above its own history (1.59×)— for a ROTCE of ~15.7%. The expected return (~+5%) comes from the recovery in interest income plus the buyback plus the dividend, with the elevated multiple leaving little margin. Buying back stock at ~2× tangible book is less accretive than when it traded at 1.3×. The margin is thin: a quality bank at a full valuation after the rally — for more margin one would have to buy it lower (as when it was at $45).
What to watch
The central disconfirmer: does net interest income keep recovering (the FTE margin already rose to 2.01% in FY2025) as the low-rate bond portfolio is reinvested, or does a Fed rate cut stall it — with rate downside weighing more than the upside (−100bp subtracts $2.0bn of NII over 12 months against only +$0.7bn added by +100bp)? The signals: NII and the interest margin quarter over quarter, the rate trajectory, and credit (charge-offs 0.50%, benign — watch the normalization). And the tail risk: the underwater held-to-maturity portfolio (−$80bn) that would only crystallize in a forced-sale scenario (unlikely, but the focus of the adverse case).
Educational / informational. Does not constitute investment advice.