Bank of America (BAC) Trades at a Discount after Q1. The Gap May Not Last

Bank of America (BAC) continues to trade at a discount to its large bank peers, but that gap may not last as earnings momentum builds. Recent Q1 2026 reports highlighted improving net interest income and a balance sheet that enables the bank to remain competitive on deposits while supporting loan growth.

Coupled with BAC’s forward P/E discount to large peers such as JPMorgan Chase (JPM) and expectations for faster earnings growth in 2027, I believe BAC remains a Buy even after a modest rally on its Q1 2026 earnings.

BAC’s Q1 2026 Earnings Highlights

BAC reported earnings per share (EPS) of $1.11, up 25% year-over-year. While a lower share count appears to have contributed roughly 4.5 percentage points of the EPS increase, underlying performance was notably strong as well. The bank’s net interest spread improved to 1.38%, up 0.18 percentage points year-over-year, as BAC managed deposit pricing in a higher‑for‑longer rate environment.

While this naturally resulted in some deposit pressure, with deposit growth lagging loan growth by our estimate of roughly 3x, BAC’s low loan-to-deposit ratio of 59% and sizable securities portfolio allow the bank to remain aggressive on deposit pricing.

The common equity tier 1 (CET1) capital ratio weakened to 11.2%, supporting return on tangible common equity (ROTCE) in mid-teens, up about 2 percentage points year-over-year. Even so, BAC’s CET1 ratio remains notably above the 10% regulatory requirement.

Results benefited from a small reserve release, as net charge-offs came in below the prior-year provision. Likewise, the increase in tangible book value per share was only $0.11/share quarter-over-quarter to $28.84/share, reflecting losses in other comprehensive income. With these caveats in mind, I would say BAC’s Q1 2026 results were quite solid.

Federal Reserve on Hold

Amid energy price volatility, Fed funds futures pricing suggests that the Fed is likely to keep the funds rate on hold for much of 2026, or at least make only modest adjustments. This environment should allow BAC to reinvest a portion of its maturing securities at higher yields over time.

Case in point: the bank’s roughly $915 billion securities portfolio yielded only 2.77% in Q1 2026. This is notably below the current 3.50–3.75% Fed funds rate and even below the 3% rate the Fed estimates it will maintain in the long term.

As these securities mature throughout 2026, BAC will likely be able to reinvest them at higher yields, boosting net interest income without clearly taking on additional risk. This is partly supported by a higher‑for‑longer yield environment, which was amplified by geopolitical tensions in the Middle East. This dynamic is particularly visible in 10‑year U.S. Treasury yields, which currently sit around 4.25–4.30% and remain modestly higher than at the start of 2026.

BAC Valuation

Following the Q1 2026 earnings beat, BAC is in a comfortable position to reach 2026 analyst EPS estimates of $4.36/share, implying a 2026 forward P/E of about 12.5x. This is meaningfully cheaper than its largest peer, JPM, which currently trades at a forward P/E above 15x on 2026 earnings. What is more, analysts project BAC’s earnings to grow at a mid‑to‑high‑single‑digit pace in 2027, faster than the roughly 6% annual growth penciled in for JPM.

As such, I think the BAC investment case can be summarized as growth at a reasonable price, at least compared to JPM. In essence, you are buying a cheaper company growing faster than its largest peer, reflecting catch-up in BAC’s profitability. Even after BAC’s ROTCE improved to 16%, it remains meaningfully below JPM’s ROTCE, which is currently in the low‑20s while targeting 17% over the cycle. As such, on the margin, BAC still has more leeway to improve profitability and efficiency.

It is true that slow deposit growth may ultimately derail the BAC investment case, as you can only increase the loan-to-deposit ratio up to a certain extent. That said, with a 59% loan-to-deposit ratio, I think BAC is in a comfortable position to modestly push up lending margins in 2027 without materially stretching its funding profile. Therefore, while BAC is far from the cheapest bank, at least compared to large peers such as JPM, my rating is a Buy.

Wall Street’s Take

Turning to Wall Street, Bank of America earns a Strong Buy consensus rating based on fourteen Buy and one Hold ratings over the past three months. Notably, not a single analyst sees Bank of America stock as a Sell. Currently, the average BAC stock price target is $59.90, implying a potential upside of about 10% over the next 12 months.

Conclusion

BAC reported solid Q1 2026 earnings, with earnings per share surging by 25% year-over-year. The strong performance was driven by a combination of factors, most notably a lower share count, higher net interest spread, and a small provision release.

BAC’s vast securities portfolio will allow it to benefit from higher interest rates in 2026, as the Federal Reserve is likely to take a cautious approach to cutting rates amid inflation fears.

Looking ahead at the rest of the year, I think BAC is in a comfortable position to reach analyst EPS estimates of $4.36/share, as the bank will likely be able to maintain aggressive deposit pricing without sacrificing accretive loan growth.

BAC is trading at a circa 9% forward P/E discount to its largest peer, JPM, despite analyst expectations for stronger EPS growth in 2027. As such, even after a modest jump on Q1 2026 results, I think BAC’s valuation remains compelling, rating it a Buy.