Is It Too Late to Buy Bank of America (NYSE:BAC) Stock after Its 39% Rally?

The banking industry could be the most vital part of the U.S. economy. The lifeblood of the entire economy is the access to capital that financial institutions can provide. Looking to start a business? You’re going to need capital. Want to expand your business? Again, you’re going to need capital. Want to buy a home? Chances are, you probably don’t have the funds to do it outright. You get the point. As one of the nation’s largest banks, Bank of America (BAC) is the heart of the world’s largest, most dynamic economy.

Thanks to a stable outlook for the U.S. economy and the potential for deregulation by the incoming Trump administration, the stock has soared 39% in 2024. Even so, I believe that it’s not too late to buy Bank of America here. Please allow me to highlight why I’m starting coverage with a Buy rating.

Bank of America Delivered a Double Beat in Q3

I believe Bank of America’s strong third-quarter performance supports my bullish stance on the stock. The company’s total revenue net of interest expense increased by 0.7% year-over-year to $25.3 billion during the quarter. That came in $70 million ahead of the analyst consensus for the quarter. This topline growth was driven by a 5.5% jump in noninterest income to $11.4 billion in the quarter. That was led by double-digit growth rates in the asset management and investment banking businesses. Higher market levels and net inflows contributed to the results for the former and healthy debt capital markets activity made results possible for the latter. These results helped to offset a 2.9% decline in Bank of America’s net interest income to nearly $14 billion.

The company’s diluted EPS decreased by 10% over the year-ago period to $0.81 during the third quarter. That was $0.05 better than the analyst consensus for the quarter. This dip in the bottom line was the result of noninterest expenses climbing by 4.4% year-over-year to $16.5 billion and a 19 basis point decline in the net interest yield to 1.92% in the quarter.

Bank of America Set to Benefit from Multiple Catalysts

Looking beyond the third quarter, my optimism is further fueled by the several tailwinds Bank of America has that could work in its favor. For one, the company’s net interest yield has stabilized, decreasing by just one basis point sequentially from Q2. As interest rates are slowly cut by the Federal Reserve, the cost of interest paid by Bank of America will lag versus the interest paid to the bank. This should help the net interest yield to gradually move higher in the coming quarters.

Additionally, Bank of America is also likely going to be a beneficiary of the next presidential administration’s policies. Merger and acquisition activity is expected to pick up under the Trump administration as less business-friendly leaders at regulatory agencies are expected to be replaced. That’s why Lucinda Guthrie of the financial data intelligence company Mergermarket is forecasting 2025 to be a breakout year for M&A. This is important because Bank of America is a leader in investment banking. CFO Alastair Borthwick noted that Bank of America maintained its number three investment banking fee position in the third quarter. It’s also anticipated that with control of U.S. Congress, President Trump could lower the corporate tax rate from 21% to 15%. That could boost corporate profits and keep markets moving higher, which would help Bank of America’s asset management business.

That’s why on top of the 3.9% increase in diluted EPS to $3.20 that’s expected for 2024, growth is expected to accelerate for Bank of America after this year. For 2025, another 14.7% jump in diluted EPS to $3.67 is being projected. In 2026, another 14.7% rise in diluted EPS to $4.21 is the current analyst consensus.

BAC Offers Secure Dividends and a Sturdy Balance Sheet

I find Bank of America’s secure dividend and solid balance sheet to be strong reasons to maintain a Buy rating. Bank of America’s 2.2% dividend yield comes in meaningfully higher than the S&P 500 index’s (SPX) 1.2% yield, which is another positive for the stock. This dividend is also easily covered by profits, with the diluted EPS payout ratio anticipated to be in the high-20% range for 2025. That provides Bank of America a runway to keep delivering at least high-single-digit annual dividend growth in the years ahead. This means that the bank offers both starting income and dividend growth potential to shareholders.

Bank of America’s financial health is another characteristic that I believe backs up its payout. This is because the company’s Common Equity Tier 1 (CET1) ratio was relatively steady at 11.8% in the third quarter. For context, that’s comfortably above the new 10.7% requirement as of October 1st. This financial prowess explains Bank of America’s A- corporate credit rating from S&P Global (SPGI) on a stable outlook.

BAC’s Valuation Could Have More Upside Ahead

Bank of America’s valuation looks to be discounted, which is another intriguing aspect of the buy case. The stock’s forward P/E ratio of 12.6 is moderately less than its 10-year normal P/E ratio of 13.8. As regulations are rolled back and M&A booms, this could result in a multi-year path to strong returns for Bank of America. That’s why I am bullish on the stock.

Is Bank of America Stock a Buy, According to Analysts?

Turning to Wall Street, analysts have a Strong Buy consensus on Bank of America. Among 16 analysts, 14 have issued Buy ratings and two have assigned Hold ratings in the last three months. The average 12-month BAC price target of $48.29 would imply a 4.8% capital appreciation from the current share price.

See more BAC analyst ratings

Key Takeaway

Bank of America could be a qualitative way to play easing U.S. regulations and thriving equity markets. The market-beating dividend looks sustainable and the balance sheet is respectable. Bank of America’s valuation is also modest enough to build in some decent upside from current levels, which is the rationale for my Buy rating.

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