1. Valuation Report
Intrinsic Value $17.7 > $14.1 Current Price
Premium: 25.5%
Alfonso Corona III
Jaclyn Khayat
Cassi Spencer
Prepared for Financial Manager, Dr. Lawrence Souza
BUY
2. ● Bank of America Background
● Financial Analysis
● Stock Valuation
● Recommendation
Overview
3. ● Founded: October 1904 as Bank of Italy in San Francisco, by Amadeo Giannini
● Purpose: Originally to serve the Italian immigrant population
● 1999: NationsBank merger changes name to Bank of America
● Headquarters: Charlotte, North Carolina, United States
● Specializes in national commercial banking, investment management, tax and estate planning,
retirement services, and wealth management banking
○ 213,000 Full Time Employees
○ Total Assets: $2,144,316,000,000
○ Total Market Cap: $144,936,734,760
○ Revenue: $91,378,000,000
○ Net Income: $15,211,000,000
Background
4. Operating Segments
Consumer 7.8
Asset Management 6.8
Global Banking 4.2
Global Markets 4.1
Commercial & Investment 8.3
Other -0.5
Total 22.1
Operating Segments ($Billions 2015)
6. Leadership
Catherine P. Bessant
Technical Officer, COO
1982 - Present (34 years)
Previous Companies:
N/A
Sheri B. Bronstein
HR Executive
2000 - Present (16 years)
Previous Companies:
JP Morgan, Global Banking and
Markets
Paul M. Donofrio
CFO
1999 - Present (17 years)
Previous Companies:
UBS, Kidder,
Peabody & Co.US Navy
Brian Moynihan
Chairman, CEO
Law Degree, Notre Dame
1995 - Present (21 years)
Previous Companies:
Fleet Boston
Dean Athanasia
President
MBA, Wharton
2004 - Present (12 years)
Previous Companies:
Fleet Boston
Geoffrey S. Greener
CRO
2007 - Present (9 years)
Previous Companies:
Caxton Associates,
Goldman Sachs
“We treat each day as an opportunity to raise the bar and create
memorable experiences for our employees, customers and communities.”
7. Banking Ranking
Rank Institution Name Total Asset ($Trill)
1 JP Morgan 2.4
2 Bank of America 2.1
3 Wells Fargo 1.8
4 Citigroup Inc. 1.7
5 American Express Co. 0.2
8. S. W. O. T.
Strengths
1. Leading market in the US
2. Strong growth in the core banking
3. Strong brand recognition
4. Excellent customer service
Weaknesses
1. Declining net interest margins
2. Weak wholesale banking operation
Opportunities
1. Credit card operations
2. Wealth management and consumer banking
3. Expand international presence
Threats
1. Increasing unemployment rates
2. Weakening financial market
3. Competition from other banks
9. Technical Analysis
Target Price $18.2 > $14.1 Current Price Premium: 29%
● Upward Trend Line
● Trading Above Resistance
● Approach to Resistance
Downward Momentum
Volume
Resistance Line
Support Line Trend Line
10. Financial Condition
Financial Ratios BOA Wells Fargo Peer Group Industry Condition
Profitability (%)
Net Profit Margin 17.6 25.0 22.0 19.0 Below Average
ROA 0.7 1.3 1.0 1.0 Below Average
ROE 6.3 12.1 9.8 8.8 Below Average
Leverage Ratios
Debt to Equity 1.0x 1.0x 1.3x 1.1x Average
Interest Coverage 2.5x 7.7x 4.4x 2.4x Average
Overall Below Average
11. Financial Condition
Financial Ratios BOA Wells Fargo Peers Industry Average Condition
Equity Ratio
Forward P/E 9x 11x 10x 13x Below Average
Dividend Payout (%) 15.0 35.1 27.7 25.8 Poor
Growth Rate
Revenue (%) (2.0) 2.0 (.41) 3.0 Below Average
Operating Income (%) 26.9 39.1 32.9 34.2 Below Average
Net Income (%) 17.5 25.0 21.2 8.0 Good
EPS (%) 1.3 4.1 2.7 7.0 Below Average
Overall Below Average
12. Valuation: Perpetuity Model
CAPM Model
Risk Free Rate 2%
Beta 1.6
Expected Market Return 8%
Cost of Equity 12%
Cost of Equity Intrinsic Stock Value Range
9% $16.8 High
10% $15.1 Medium
11% $13.8 Low
Intrinsic Stock Value $15.1 > $14.1 Current Stock Price Premium: 7.1%
2014 2015 2016E 2017E
EPS 0.4 1.9 1.5 1.5
g (%) 0.6 0.5 0.5 0.6
13. Valuation: Gordon Growth
Discount Rates
CAPM 12%
WACC 10%
Cost of Debt 6%
i/g 1% 2% 3% Range
9% 18.9 21.6 25.2 High
10% 16.8 18.8 21.5 Medium
11% 15.1 16.8 18.9 Low
Range Low Medium High
Intrinsic Stock Value $18.8 > $14.1 Current Stock Price Premium: 19%
2015 2016 2017E
EPS 0.4 1.4 1.5
g (%) 0.6 0.5 5
Formula: PV = Expected EPS / (i-g)
Stock Value = 1.5 / (10-2) = $18.8
14. Valuation: Multiple Approach
Intrinsic Stock Value $17.3 > $14.1 Current Stock Price Premium: 22.7%
EPS in 2017 g
1.5 1.5
P/E Ratio Stock Value Range
12x 17.3 High
11x 15.8 Medium
10x 14.4 Low
P/E Ratio 2015 2016E 2017E
Bank of America 12x 12x 10x
Wells Fargo 12x 12x 11x
Goldman Sachs 9x 9x 9x
Citigroup Inc 12x 12x 8x
JP Morgan 11x 11x 10x
Formula: PV = P/Et+1
* M =$1.4*12
15. 2016 2017 2018 2019 2020 TV
EPS 1.3 1.6 1.8 1.8 1.9 1%
24.7
17.7
g 5% 19% 10% 4% 3%
Discounted
Cash Flow
3.5 3.7 3.8 3.8 4.1
Corporation
Value
$18.9
Valuation: DCF Model
Weighted Debt 45%
Weight Equity 55%
Rdebt
7.5%
Requity
8%
WACC
(unadjusted)
12%
WACC Stock Value Range
7% $19.6 High
8% $18.9 Medium
9% $18.1 Low
Intrinsic Stock Value $18.9 > $14.1 Current Stock Price Premium: 40%
16. Weighted Stock Valuation
Intrinsic Stock Value $17.7 > $14.1 Current Stock Price Premium: 25.5%
Model Stock Value Weight
Perpetuity $15.1 5% 10% 15%
Gordon Growth $16.8 5% 10% 15%
Multiples $17.3 40% 30% 25%
Discounted CF $17.7 50% 50% 45%
$17.4 $17.2 $17.1
BUY
17. Summary
★ Financial Condition: Below Average
★ The 2nd largest United States bank in terms of asset holding.
★ Intrinsic Value $17.7 > $14.1 Current Price Premium: 25.5%
★ Recommendation:
Financial Services Index Financial Service ETFs Bank Stock
● Buy Forwards ● Buy on Margin ● Buy on Margin
● Buy Futures ● Buy Calls ● Buy Calls
● Buy Calls of Futures ● Write Puts ● Write Puts
● Write Puts on Futures
Trades: 12
BUY
18. References
❖ Morning Star Report for Bank of America Corporation
❖ Bank of America Corporation Webpage
❖ Yahoo Finance, 2015
❖ Google Finance, 2015
❖ Value Line Report of Bank of America Corporation, 2015
19. Appendix: Intrinsic Valuation Matrix
High Medium Low
Perpetuity Model $16.8 $15.1 $13.8
Gordon Growth $21.6 $18.8 $16.8
Multiple Approach $17.3 $15.8 $14.4
DCF Approach $19.6 $18.9 $18.1
Intrinsic Stock Value $17.7 > $14.1 Current Stock Price Premium: 25.5%
