$Bank of America(BAC)$is one of US largest banks. It is Warren Buffett's favorite bank. Making up approx. 12.5% of $Berkshire Hathaway(BRK.B)$portfolio, it's Buffett's second biggest second position after $Apple(AAPL)$.
The company has posted strong results over the past year. It had one of the best first-quarter earnings reports among large U.S. banks, and it reported a 52% decline in net loan charge-offs in the quarter.
Net interest income (NII) of $11.6B ($11.7B FTE1) increased $1.4B, or 13%, driven by strong deposit growth and related investment of excess liquidity, loan growth and lower premium amortization expense.
BAC grew its EPS by ~10% per year. That growth rate is fairly good, assuming the company can keep it up.
In the chart below, you can see how the company has grown earnings, and revenue, over time.
The recent drop in the stock price was due to several factors - record-high inflation figures, investor fear of the economy moving into recession due to faster than expected interest rate hikes, and geopolitical tensions.
The Federal Reserve has already increased the benchmark interest rates twice this year, 0.25% in March and 0.50% in the first week of May, and the public anticipate further positive revisions in the year. It will likely benefit the NII of the bank, which contributes close to 50% of the top line.
Rate hikes and a recovering economy could position BAC to outperform in 2022. In the next five years, BAC should be able to deliver at least a mid-single-digit earnings per share growth on an annualized basis.
As an investor, we need to find companies that are going to perform well in the future, not just in the past.
With regards to its attractiveness as a long-term investment, BAC has dealt with digital disruption threats well, and there is the potential for further valuation re-rating but is it worth adding the stock to one's portfolio now given the prevailing economic uncertainties? I think the answer is yes if we are lookinglong term.
Disclaimer: The information and data made available in this post including facts, views, analysis, opinions are for general information purposes only. It is NOT intended as any buy-sell advice.
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