Last week the Fed approved the capital plans of the vast majority of the big banks, BAC included. As a result, BAC announced a very large share repurchase plan of roughly $5 billion, and the redemption of $5.5 billion in preferred stock, in the months and quarters ahead. I saw no timetable for completion of the plans. This far exceeded the analysts' estimates of a $1 billion plan, and Wall Street cheered the moves with a 4% pop in the share price, up to about $12.60/share.
Many investors are also cheering the move, as this will also mean that eventually the total share repurchase will keep the share price well under overall book value which stands today at only 63% of the share price.
With an accelerated share repurchase, the number of shares bought back, at current pricing, would be roughly 400 million shares. Bank of America currently has about 10.8 billion shares outstanding. A total of 10.4 billion shares will still be outstanding, and the price to book value could dip at a bit under 60%.
The shares would still be selling at roughly a 40% discount according to these metrics. That would place a fully valued price of about $18.00/share as the new foundation for analysts to view.
Does this mean that BAC stock should be purchased at these levels? Well I suppose it would be how an investor views the recent developments."
This is an excerpt from an article from seekingalpha. It is pure math and it makes sense. It is a statement of fact not opinion.
As far as facts go, the market tends to look at tangible book value rather than stated book value. At year-end 2012 for BAC the TBV was 13.36/sh. Still, stock can be bought at 6% discount from TBV and well worth it. Hard to see 18/sh on the stock with eps around 1.25 this year reflecting the pfds retirement and $5 billion buyback, There is also the uncertainty of legal matters and the possibility of under reserving for that. The market may well have BAC shareprice about right at this point.
BAC is smart because they didn't want to increase the dividend too high instead buying back stock at these low levels. This is a good strategy and can save the company many billions of dollars. They know the stock price price will go up much higher by next year. This year is for rebuilding a stronger foundation. Management wants BAC back to $60 instead of just doubling again.