BAC Shares Outpace the S&P 500 in 2025: Will Momentum Hold in 2026?

Core Viewpoint - Bank of America (BAC) has shown solid stock performance, with a 24.1% increase in 2025, following a 30.5% gain in 2024, although it lagged behind peers like JPMorgan and Citigroup [1][7] Financial Performance - BAC's net interest income (NII) is projected to grow by 5-7% year-over-year in 2026, despite the Federal Reserve's interest rate cuts [2][4][25] - The company expects loans and deposits to grow at a compound annual growth rate (CAGR) of 5% and 4%, respectively [3] Network Expansion & Digital Strategy - BAC operates 3,650 financial centers and is expanding into high-growth markets, having opened 300 new centers since 2019 [5][9] - The bank's strategy combines digital and physical services to enhance customer relationships and drive deposit growth [10][26] Shareholder Returns - BAC has authorized a $40 billion share buyback plan and raised its dividend by 8%, reflecting a strong focus on returning value to shareholders [7][15][26] - The company has consistently increased dividends over the past five years, with an annualized growth rate of 8.83% [13] Investment Banking Outlook - BAC's investment banking (IB) fees are expected to increase by approximately 4% year-over-year in 2025, following a recovery in deal-making activities [16][17] - The bank aims for mid-single-digit CAGR in IB fees and plans to deepen integration between corporate and IB services [17] Asset Quality Concerns - BAC's asset quality has been deteriorating, with significant increases in provisions and net charge-offs in recent years [18][19] - The company remains cautious about the impact of high interest rates on borrowers' credit profiles [19] Earnings & Valuation - The Zacks Consensus Estimate for BAC's earnings is $3.80 for 2025 and $4.33 for 2026, indicating growth rates of 15.9% and 14%, respectively [20][22] - BAC's stock is trading at a price-to-tangible book (P/TB) ratio of 2.01X, below the industry average of 3.18X, suggesting it is undervalued [22][24] Future Outlook - The fundamental backdrop for BAC remains constructive, with expectations of NII growth supported by loan demand and easing capital requirements [25][26] - The bank's expanding physical network and digital engagement are expected to enhance core deposit growth and cross-selling opportunities [26]