MADRID. Bank of America (BofA) is one of the Big Four banking institutions in the United States along with JPMorgan Chase, Wells Fargo and Citigroup. Headquartered in Charlotte, North Carolina, whose main financial services include commercial banking, wealth management and investment banking, it services approximately 11% of all US bank deposits.
BofA is down about 18% so far this year and has a market capitalization of about $293 billion, making it the second largest banking institution in the United States behind JPM.
Despite growing fears that the Federal Reserve’s aggressive monetary tightening could push the economy into a recession, Bank of America benefits from the current rise in rates in the Treasury market as a result of the current inflationary environment.
Banks are among the most sensitive to rising interest ratesas higher yields tend to increase the interest yield lenders earn on their loan products, or net interest margin.
In fact, BAC noted in its first quarter earnings report that a 100 basis point increase in interest rates would boost its net interest income by $5.4 billion over the next 12 months.
Also, the banking giant – whose shares have a relatively cheap price/earnings ratio of 10.3 – offers an annualized dividend of $0.84 per share with a return of 2.31%, above the implied return of the S&P 500which is currently 1.41%.
In fact, 15 of 28 analysts surveyed by Investing.com rate Bank of America stock as ‘outperformwhile the remaining 13 recommend keeping it.
Analysts’ median price target for the stock is around $47which represents an increase of approximately 30% from current levels in the next 12 months.
Jesse Cohen is an analyst at Investing.com
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