On October 16, Bank of America (BAC) reported adjusted 3Q19 earnings of $0.75 per share, up from $0.66 a year earlier. Revenues were flat, as higher net interest income from loan growth and greater investment banking fees was offset by lower card fee income and trading revenues.
Efficiency remains a key trend for BAC, with the company having a long string of quarters with positive operating leverage. Cost control will be increasingly important given a lower yield curve environment.
BAC has one of the more intensive share repurchase programs among the major banks, reducing share count by 8% in 3Q, in what we view as a solid underpinning for the stock. Share buyback authority was increased by 50% for the 2019/2020 CCAR cycle. We note Berkshire Hathaway recently filed for approval to increase its stake in BAC above 10%. Berkshire’s position has continued to increase as BAC buys back shares.
We see the franchise attractively valued at only 10-times our 2019 EPS estimate, a discount to both the historical valuation and major bank peers. The dividend yield of 2.5% adds to total return potential, and we believe the dividend payout ratio has room to improve.
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