On Dec 1, 2014, we issued an updated research report on Bank of America Corporation (BAC). We believe that BofA’s efficiency initiative – Project New BAC – will continue to support its financials, as revenue growth is expected to remain muted in the near term.
BofA had launched its expense-saving plan in 2011, with a target to lower costs by $8 billion by the end of this year. Notably, the company successfully completed its Project New BAC program ahead of schedule by reaching the target in third-quarter 2014. Presently, the company expects to achieve an additional $500 million of cost savings per quarter by the end of 2014, well ahead of its prior projection of reaching the goal by mid-2015.
Further, BofA continues to align its banking center network according to customer needs. The company has been closing or selling branches in markets where growth potential does not meet its criteria, while expanding in markets with strong growth potential. Notably, over the past one year, the company has closed/sold more than 300 branches.
On the flip side, continued pressure on revenue remains a major concern for BofA. We believe that top-line growth will be muted owing to a still low interest rate scenario and sluggish economic recovery. Also, with the enforcement of new banking regulations, there will be additional pressure on fee income.
Analysts have expressed mixed outlook for BofA’s future prospects. Over the last 30 days, the Zacks Consensus Estimate fell 2.1% to 46 cents per share for 2014, while for 2015 it remained stable at $1.50 per share.
BofA currently carries a Zacks Rank #3 (Hold).
Stocks That Warrant a Look
Some better-ranked banking stocks include Preferred Bank (PFBC), Western Alliance Bancorporation (WAL) and State Street Corporation (STT). While Preferred Bank and Western Alliance sport a Zacks Rank #1 (Strong Buy), State Street holds a Zacks Rank #2 (Buy).
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