There's No Shame in Loving Bank of America

NEW YORK (TheStreet) -- With 35% stock gains over the past twelve months, which exceeded the 29% gains of the S&P 500, Bank of America (BAC) isn't a "reclamation project" anymore-- at least not in the figurative sense.

The bank has fought a long battle toward recovery, including a pretty significant restructuring plan that reduced its workforce by 10% over the past 18 months. This took place as management fixed concerns surrounding the bank's debt. Those hard moves have bolstered BofA's balance sheet. It seems, however, that despite the ample positive signs of progress, some analysts still have a hard time giving management the credit they deserve.

The Street is also discounting that management has shed some, if not most, of BofA's low-performing assets and loans. Not only have these decisions improved management's ability to return value to shareholders, some analysts overlook the fact that the bank scores extremely well on its stress tests, or what is known in the industry as Basel 3, a global regulatory standard on bank capital ratio requirements to prevent further "too big to fail" situations.

[Read: Wells Fargo Looks to Stay Ahead of the Curve]

This is another reason to believe that -- despite 35% gains in the trailing 12 months -- the shares should no longer be perceived as high risk. That doesn't mean I'm blinded to the fact that Bank of America,  relative to (arguably) better-run money centers like Wells Fargo (WFC), still has plenty of legacy operational issues it needs to resolve. It's nonetheless pointless to continue to nitpick about what I believe to be meaningless details.

On Wednesday, the bank will report its fourth-quarter and year-end results. And management will have another opportunity to earn some much-deserved respect. The Street will be looking for 26 cents in earnings per share on revenue of $21.15 billion. While this does represent a year-over-year revenue decline of 2.3%, it's worth noting that not only does this match expectations for JPMorgan Chase (JPM), but the expected 2.3% decline is also (relatively) more optimistic than the 6% decline that was projected for Wells Fargo.

That said, given the deficits this bank has had to overcome, I wouldn't put so much weight on the revenue metric. I've said this same thing regarding Wells Fargo and JPMorgan. What investors should instead focus on are things like fee income growth, which has been relatively unimpressive over the past couple of quarters. The bank's profits and market share rely on its ability to grow fee income.

The good news is that management is aware of this situation. Despite BofA having posted a decline in global fee pools in the October quarter, the bank was still able to rake in a record $1.3 billion in fees, which was still good enough to grow share against JPMorgan Chase (JPM) and Citigroup (C), two titans that at one point surpassed BofA's investment banking business.

To the extent that management can maintain this sort of momentum, investors should be encouraged that BofA's profit growth has only just begun. This is even with the expected decline in revenue.

As with Wells Fargo, investors should also pay special attention to how Bank of America performs in net interest margin (NIM). This is the metric that explains how well management has utilized capital relative to the bank's debt situation. BofA's NIM results have been a popularly cited argument for analysts who want to complain about valuation.

[Read: How Do Retirees Qualify for a Loan?]

Now, I will grant that BofA has underperformed when compared to both Wells Fargo and JPMorgan in terms of their respective earnings assets. At the same time, though, neither Wells Fargo nor JPMorgan have had to drastically transform their businesses -- certainly not to the extent of Bank of America. Not to mention, they both have longer-tenured CEOs than BofA's CEO, Brian Moynihan, who is being compensated in the form of performance-based restricted stock.

What this means is that Moynihan, who has laid out a blueprint for the bank's sustainable growth over the next several years, is being compensated based on his ability to execute that vision. Here, too, details such as these are being ignored and should be kept in perspective.

Plus, I believe it's time for the Street to drop the "villain" label it has long plastered on Bank of America. It's gotten old. And with mortgage originations on the rise and the housing recovery in full swing, the worst is over for Bank of America. Accordingly, I would be a buyer here ahead of earnings, and believe that BofA's fair market value will reach $20 by the second half of 2014.

At the time of publication, the author held no position in any of the stocks mentioned.

This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.

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