BAC Fundamental Research Investment Analysis, Bank of America Corp.

The Razor's Edge

2-Year Price History

Recent Price
(1/22/2009)
$5.71
52-Week Price
$5.05 - $45.08
Market Capitalization
$28.7 Billion
Dividend Yield
22.40%
Most Recent Dividend
$2.40

About Bank of America Corp.

Bank of America Corporation is considered to operate in the Financial sector. They specifically operate in the Money Center Banks business segment contained within the Banking industry.

The Company through its subsidiaries, provide banking & nonbanking financial services and products through three business segments: Global Consumer and Small Business Banking, Global Corporate & Investment Banking & Global Wealth & Investment Management.

A Word Of Caution

The Ockham Research Team has placed an alert on this security because there have been significant developments associated with Bank of America Corp. (BAC). Eventually, these externalities may have an impact on our valuation but these recent events have not yet been fully factored into our analysis.

Of course, you may proceed to review our research report for this security, but please be aware that our model may not reflect these significant factors surrounding this company as our data sources are still being updated. This alert shall remain in effect until the situation surrounding this security normalizes substantially.

Therefore, (and as always), check additional sources and available information regarding BAC before making an investment decision.

Ockham's Rating

As frequent users of Ockham Research are aware, we strive to adhere to the principal of Ockham's Razor. This company ideal drives us to keep our stock analysis as simple as possible, but of course, no simpler than is necessary. It is in that vein that we focus much of our analysis on fundamental factors, peer analysis, and valuations versus historically normal ranges. However, we also apply standard deviation and volatility studies for each index and sector in order to understand more completely the risks associated with each market environment.

As any market observer has noticed, the NYSE has been routed recently declining by 32.5 percent over the last six months. However, you may not have noticed that the Financials sector has actually underperformed the terrible performance of the broad market indices, declining by 49.7 percent over that time period. To see just how poorly this sector has performed in comparison to the market, take a look at the 5 stocks selected in the peer group, which have an average price-earnings ratio of 18.69 . From a value perspective, there are not a lot of stocks that are declining faster than those in this sector, but we feel an upgrade is warranted nonetheless for BAC as the fundamentals are now supporting a reduced price.

Over the past week, the price of BAC has declined by 44.73%.

Because there has not been a significant change in cash earnings estimates, the reason for the upgrade is that the share price has crossed over a pricing threshold.

BAC Stock Evaluation

We are upgrading BAC at this time due to a better valuation. Since our last rating change that occurred on 11/29/2008, BAC’s price has fallen by $9.07, or 55.82%. For a given set of fundamentals, a decrease in stock price makes a company’s valuation that much more attractive.

BAC Revenue

As we have often noted, in our valuation methodology, "Cash is King." Well, it goes without saying that if a company cannot produce sales then there is no ability to generate cash flow. By that logic we look very closely at revenue numbers as our second most important factor in valuing a company's stock. We have established reasonable Price to Sales per share ranges based on historical data of the last 10 years. For, BAC the high and low end of the Price to Sales per share ratios are 1.12x and 0.73x respectively.

Notice that BAC's current Price to Sales per share ratio is 0.37x, which is quite a bit below what we consider a normal Price to Sales ratio for this stock. Given normal conditions and a price of $7.18, BAC is 60% below where we would expect to see it. This will beneficially factor into our final analysis of BAC as it is not often that this stock sinks to these levels.

BAC Cash Earnings

Looking at BAC specifically in their Cash Earnings capabilities, Ockham views BAC as significantly below their historical average multiples of Cash Earnings, as calculated by our proprietary analysis. It is incredibly important to understand that for BAC, the current level of Cash Earnings compared to its historical levels helps identify where BAC is in relation to what the investing community was willing to pay for this level of Cash Earnings in the past. With a historical high Cash Earnings per share ratio of 7.08 and a historical low Cash Earnings per share ratio of 4.32, an investor can relate where value becomes optimal.

So what does "significantly below" mean when we talk about Price to Cash Earnings numbers for BAC? From the Ockham perspective, we are looking specifically at BAC to see if the market is recognizing the huge disparity between BAC's past stock price to Cash Earnings ratio to today's levels. At a difference of 61% below the average historical Price to Cash Earnings ratio, our view would be quite positive at this point. However, as with all metrics, we need to also take other factors into account when looking at BAC. While we view better Cash Earnings metrics as very important, if the market is slow to identify this value, or if Cash Earnings were to fall from these levels, we would become more neutral in our stance.

BAC Dividends

When determining a company's future prospects for success, Ockham Research sees analysis of dividend payments as a key additional factor. Even though it isn't imperative for BAC to shell out a dividend in order to receive a positive rating, it can be helpful to further our analysis.

The estimated annual dividend for BAC is $1.28 producing a current dividend yield of 17.83%. Much like our evaluation of Sales and Cash Earnings per share, we review dividend yields from BAC against the historic high and low levels over all available dividend history. Because dividends are a decision made exclusively by management, we view a healthy and rising dividend as a sign of confidence and strength. The highest dividend yield from BAC over previous years was 23.98% while the lowest dividend yield was 2.84%. BAC’s current dividend yield is therefore significantly higher than its median dividend yield historically. In fact, the current yield is 32.96% above the median which weighs very positively on our analysis of BAC.

Peer Comparison

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Bank of America Corp. Industry Grouping

(1/22/2009)
Company Ticker Market Cap (Ml) Latest
Price
Price/Cash Earnings Price/Sales 5-Yr. Rev.
Growth Rate
5-Yr.
Avg. ROE.
Current 10-Yr. Range* Current 10-Yr. Range*
Peer Company Averages (not incuding BAC) 17.89 7.10 » 52.90 1.18 0.92 » 3.58 15.47% 19.23%
*10 year range does not include current year values
Royal Bank of Canada RY $31.9 Billion $23.86 5.93 8.42 » 21.30 1.15 0.77 » 2.53 10.66% 19.40%
Banco Bilbao Vizcaya Argentaria SA BBV $31.6 Billion $8.44 3.53 3.33 » 25.20 1.10 0.89 » 3.05 17.65% 21.16%
Bank of America Corp. BAC $28.7 Billion $5.71 2.23 4.74 » 21.33 0.37 0.58 » 2.94 20.79% 15.92%
Mizuho Financial Group, Inc.-Sp ADR Shs Sponsr Amern Deps Recp 2 Sh MFG $27.1 Billion $4.85 67.50 8.62 » 150.00 0.75 0.49 » 3.55 n/a 22.07%
Toronto Dominion Bank TD $25.6 Billion $31.59 5.68 8.24 » 30.50 1.31 0.95 » 2.82 12.81% 17.82%
The Bank of New York Mellon Corp. BK $25.3 Billion $22.08 6.79 6.88 » 37.50 1.58 1.52 » 5.93 20.76% 15.72%
Current
Rating on:
BAC

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Key Fundamentals

BAC - Bank of America Corporation Fundamentals
Price (1/22/2009) $5.71
Volume (1/22/2009) 356.4 Million
10 Day Average Volume 289.1 Million
13 Week Price Range $5.05 - $24.62
52 Week Price Range $5.05 - $45.08
LTM Revenue $115.8 Billion
 
Shares Outstanding (12/2007) 5.0 Billion
Market Capitalization $28.7 Billion
Shares Held By Institutions 2.9 Billion
Insitutional Holders 1,800
% Shares Held By Institutions 57%
Earnings Per Share (EPS) $3.30
P/E Ratio 5.00
Book Value Per Share $27.28
 
Gross Margin n/a%
Quarterly Dividend 1.28
Dividend Yield 22.40%
Beta 1.12
Fiscal Year Ends December