NEW YORK (TheStreet) -- Shares of Bank of America (BAC) are rallying, up 1.75% to $16.28 on heavy volume in afternoon trading Friday, after the Federal Reserve released results from their annual Dodd-Frank stress test.
All 31 banks passed the test, which measures how a bank would fare in a "severely adverse" scenario. The scenario assumes unemployment hitting 10% in mid-2016, real gross domestic product falling about 4.5% by the end of 2015 and a 25% decline in house prices. It also factors in a jump in oil prices to $110 a barrel.
The Fed found that Bank of America's Tier 1 common ratio, which measures high-quality capital as a share of risk-weighted assets, was 7.1%, higher compared to the the 5% minimum allowance level.Bank of America's Tier 1 leverage ratio, which measures high-quality capital as a share of all assets, was 5.1%, higher than the 4% Fed minimum.
Next week, these results will be considered when the Fed decides whether to approve Bank of America's plan for rewarding shareholders with dividends or possible share buybacks.
Results of the CCAR, or Comprehensive Capital Analysis and Review, are expected next Wednesday, after which banks will be able to announce the approved share buyback and dividend actions.
About 110.5 million shares of Bank of America have exchanged hands as of 1:36 p.m. ET today, compared to its average trading volume of about 97.32 million shares a day.
Charlotte, NC-based Bank of America is a financial institution, serving individual consumers, small and middle market businesses, institutional investors, large corporations and governments with a range of banking, investing, asset management and other financial and risk management products and services.
Separately, TheStreet Ratings team rates BANK OF AMERICA CORP as a Buy with a ratings score of B-. TheStreet Ratings Team has this to say about their recommendation:
"We rate BANK OF AMERICA CORP (BAC) a BUY. This is driven by multiple strengths, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. Among the primary strengths of the company is its expanding profit margins over time. We feel these strengths outweigh the fact that the company has had lackluster performance in the stock itself."
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- The gross profit margin for BANK OF AMERICA CORP is currently very high, coming in at 87.12%. It has increased from the same quarter the previous year. Along with this, the net profit margin of 14.35% is above that of the industry average.
- BANK OF AMERICA CORP's earnings per share declined by 13.8% in the most recent quarter compared to the same quarter a year ago. The company has suffered a declining pattern of earnings per share over the past year. However, we anticipate this trend reversing over the coming year. During the past fiscal year, BANK OF AMERICA CORP reported lower earnings of $0.35 versus $0.91 in the prior year. This year, the market expects an improvement in earnings ($1.40 versus $0.35).
- BAC, with its decline in revenue, slightly underperformed the industry average of 4.6%. Since the same quarter one year prior, revenues fell by 13.0%. The declining revenue appears to have seeped down to the company's bottom line, decreasing earnings per share.
- The change in net income from the same quarter one year ago has exceeded that of the Commercial Banks industry average, but is less than that of the S&P 500. The net income has decreased by 11.3% when compared to the same quarter one year ago, dropping from $3,439.00 million to $3,050.00 million.
- The company's current return on equity has slightly decreased from the same quarter one year prior. This implies a minor weakness in the organization. Compared to other companies in the Commercial Banks industry and the overall market on the basis of return on equity, BANK OF AMERICA CORP underperformed against that of the industry average and is significantly less than that of the S&P 500.
- You can view the full analysis from the report here: BAC Ratings Report