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Buy Maintained on Bank of America (BAC)

Joanna Kong
Yahoo Finance Premium
Manhattan, New York USA - July 9, 2011: People and tourist walking by the colorful electronic sign of Bank of America. The sign is one of many colorful signs in Times Square.

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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