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TheStreet Open House

'Easy Money' Over for Bank of America Stock: KBW

But Bank of America's shares are looking downright pricey by one measure. The shares trade for 10.4 times the consensus 2014 EPS estimate of $1.29, among analysts polled by Thomson Reuters. Here's how that forward price-to-earnings ratio compares to the company's peers among the "big six" U.S. banks:

  • Shares of JPMorgan Chase (JPM - Get Report) closed at $52.30 Friday, trading for 8.8 times the consensus 2014 EPS estimate of $5.94.
  • Citigroup (C - Get Report) closed at $51.45, trading for 9.7 times the consensus 2014 EPS estimate of $5.32.
  • Morgan Stanley (MS - Get Report) closed at $25.19, trading for 9.9 times the consensus 2014 EPS estimate of $2.54.
  • Goldman Sachs (GS) closed at $158.18, trading for 10.4 times the consensus 2014 EPS estimate of $15.27.
  • Wells Fargo (WFC - Get Report) closed at $39.88, trading for 10.5 times the consensus 2014 EPS estimate of $3.81.

It's understandable for Wells Fargo's shares to trade at a higher forward P/E than Bank of America, considering that Wells Fargo has had the outstanding earnings track record among the big six over the several years. Then again JPMorgan Chase's shares trade at a much lower multiple, while the company has also greatly outperformed Bank of America, which has had marginal annual earnings results over the past five years.


Looking forward, investors are expecting Bank of America to achieve very significant cost savings as mortgage loan quality continues to improve, repossessed property inventory declines and loan servicing staffs are trimmed. Investors expect additional efficiencies through the company's "Project New BAC" cost-cutting program.

Mutascio estimates that Bank of America can eventually hit $1.80 a share in "normalized" annual earnings, however, he sees the market currently "applying no material discount to the P/E multiple applied to the normalized EPS earnings, regardless of the time that it takes to achieve."

"We are unwilling to use BAC's potential normalized earnings power for a basis of valuation without at least discounting the P/E multiple applied to those earnings for the years we think it will take to get there and the uncertainty of the company's ability to achieve them," Mutascio wrote. "Using this method, we could potentially see a fair value of $14.50 (applying a discounted multiple of 8.0x for timing to normalization and uncertainty of achievability to $1.80), which still would not represent enough upside to warrant an Outperform rating."

BAC Chart BAC data by YCharts

Interested in more on Bank of America? See TheStreet Ratings' report card for this stock.


-- Written by Philip van Doorn in Jupiter, Fla.

>Contact by Email.

Philip W. van Doorn is a member of TheStreet's banking and finance team, commenting on industry and regulatory trends. He previously served as the senior analyst for TheStreet.com Ratings, responsible for assigning financial strength ratings to banks and savings and loan institutions. Mr. van Doorn previously served as a loan operations officer at Riverside National Bank in Fort Pierce, Fla., and as a credit analyst at the Federal Home Loan Bank of New York, where he monitored banks in New York, New Jersey and Puerto Rico. Mr. van Doorn has additional experience in the mutual fund and computer software industries. He holds a bachelor of science in business administration from Long Island University.
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