There's no shame in loving Bank of America

The bank has fought a long battle toward recovery, including a pretty significant restructuring plan.

By Staff Jan 14, 2014 6:09PM

Bank of America Corp. signage is displayed outside of a branch in San Francisco, California David Paul Morris/Bloomberg via Getty ImagesBy Dan Freed

NEW YORK (TheStreet) -- With 35 percent stock gains over the past twelve months, which exceeded the 29 percent gains of the S&P 500Bank of America (BAC) isn't a "reclamation project" anymore -- at least not in the figurative sense. logoThe bank has fought a long battle toward recovery, including a pretty significant restructuring plan that reduced its workforce by 10 percent over the past 18 months.

This took place as management fixed concerns surrounding the bank's debt. Those hard moves have bolstered BofA's balance sheet. It seems, however, that despite the ample positive signs of progress, some analysts still have a hard time giving management the credit they deserve.

The Street is also discounting that management has shed some, if not most, of BofA's low-performing assets and loans. Not only have these decisions improved management's ability to return value to shareholders, some analysts overlook the fact that the bank scores extremely well on its stress tests, or what is known in the industry as Basel 3, a global regulatory standard on bank capital ratio requirements to prevent further "too big to fail" situations.

This is another reason to believe that -- despite 35 percent gains in the trailing 12 months -- the shares should no longer be perceived as high risk. That doesn't mean I'm blinded to the fact that Bank of America, relative to (arguably) better-run money centers like Wells Fargo (WFC), still has plenty of legacy operational issues it needs to resolve. It's nonetheless pointless to continue to nitpick about what I believe to be meaningless details.

On Wednesday, the bank will report its fourth-quarter and year-end results. And management will have another opportunity to earn some much-deserved respect. The Street will be looking for 26 cents in earnings per share on revenue of $21.15 billion. While this does represent a year-over-year revenue decline of 2.3 percent, it's worth noting that not only does this match expectations for JPMorgan Chase (JPM), but the expected 2.3 percent decline is also (relatively) more optimistic than the 6% decline that was projected for Wells Fargo.

That said, given the deficits this bank has had to overcome, I wouldn't put so much weight on the revenue metric. I've said this same thing regarding Wells Fargo and JPMorgan. What investors should instead focus on are things like fee income growth, which has been relatively unimpressive over the past couple of quarters. The bank's profits and market share rely on its ability to grow fee income.

The good news is that management is aware of this situation. Despite BofA having posted a decline in global fee pools in the October quarter, the bank was still able to rake in a record $1.3 billion in fees, which was still good enough to grow share against JPMorgan Chase and Citigroup (C), two titans that at one point surpassed BofA's investment banking business.

To the extent that management can maintain this sort of momentum, investors should be encouraged that BofA's profit growth has only just begun. This is even with the expected decline in revenue.

Now, I will grant that BofA has underperformed when compared to both Wells Fargo and JPMorgan in terms of their respective earnings assets. At the same time, though, neither Wells Fargo nor JPMorgan have had to drastically transform their businesses -- certainly not to the extent of Bank of America. Not to mention, they both have longer-tenured CEOs than BofA's CEO, Brian Moynihan, who is being compensated in the form of performance-based restricted stock.

What this means is that Moynihan, who has laid out a blueprint for the bank's sustainable growth over the next several years, is being compensated based on his ability to execute that vision. Here, too, details such as these are being ignored and should be kept in perspective.

Plus, I believe it's time for the Street to drop the "villain" label it has long plastered on Bank of America. It's gotten old. And with mortgage originations on the rise and the housing recovery in full swing, the worst is over for Bank of America. Accordingly, I would be a buyer here ahead of earnings, and believe that BofA's fair market value will reach $20 per share by the second half of 2014.

At the time of publication, the author held no position in any of the stocks mentioned.

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Jan 14, 2014 6:32PM
There is also no shame in hating this company.  Bunch of sleazebags if you ask me.
Jan 14, 2014 7:19PM
I truly don't know how B of A stays in business, I've never met anybody who likes their bad service and gouging fee's for everything. I guess it's like the battered wife syndrome, where they just keep going back and blaming themselves for the punishment they're getting, go figure.
Jan 14, 2014 8:47PM
Jan 14, 2014 7:42PM
They are robber barons. The bank stole $100 from my checking account for a bank lien that was placed in error. They would not refund it. I took my money out of BoA and Merrill Lynch. I will never do business with them again.
Jan 15, 2014 10:28AM
I bought $40000 worth of stock when BAC was $11. Today is a Suh-weet day!  Theyve hit over $17 a share now. Love this puppy!
Jan 15, 2014 8:55AM
They are a very odd company with very bad customer service. Aside from that, they are a great American company with a rich history. Don't like them, don't use them.
Jan 15, 2014 11:39AM
There's no shame in having total disgust for BAC, GS and JPM either.
Jan 16, 2014 10:27PM
A future Republican in the making.​​​om/watch?v=AukE25i​s​p​VY

They are simply adorable and loving little things aren't they?
Jan 15, 2014 9:31AM
Bank is able to rake in 1. 3 billion in fees= SCREW THE SMALL DEPOSITOR ! Overcharge on all sorts of hidden fees on loans on deposits ! Foreclose on a million American homes in illegal fashion throw women and children and elder citizens out into the street ! This bank has no SHAME about its tactics towards the American People ! BOA is a Criminal Cartel with one aim  GREED and POWER and to protect its upper management at all costs   DIE BANK OF AMERICA DIE  !
Jan 15, 2014 11:42AM

That's about 3600 plus shares...With about a 60% gain or so..?

If you now sell about 2350 shares and take the cash to the table for other investments;

You would still own the difference(1250 sh. e.) and be using their money or your profit..

And have $40,000 to invest in other Companies...

Pretty good deal, really.

Even a cute puppy can grow up to be a mean dog....

Jan 15, 2014 3:55PM
BOA is truly an awful financial institution.  The fact that is was allowed to survive is a disgrace.   This is a prime example of why TBTF banks should have been allowed to fail.

So in the words of a more eloquent poster, "Die Bank of America, Die"...
Jan 15, 2014 2:52PM
No shame in  loving the Goldman Sachs Gang they along with BOA are doing GOD'S work according to the CEO of Goldman ! What is not to like about that positive money making attitude ?
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