Buffett’s Sale of BAC Stock: A Smart Move or Missed Opportunity?

Key Points

• Bank of America released its quarterly earnings results, showing a strengthening trend in consumer credit and commercial economies.
• Based on these themes, Wall Street analysts forecast better EPS for next year and a double-digit upside price target.
• Indicators within these results show a massive improvement in the underlying credit markets.

After Warren Buffett decided to trim his holdings in the financial sector, with Bank of America Co. NYSE: BAC being one of his selling picks, a lot of investors in the market grew weary of where the system might be headed if not the broader economy. As earnings season kicks off for the first quarter of 2025, other banking names might reveal a broader trend for the S&P 500 and the United States economy.

Just like the results coming out of the Goldman Sachs Group Inc. NYSE: GS, which signaled a potentially better financing environment brought on by a bond and credit market rally, driven by improving credit risk and a macro view for potentially lower yields in the coming quarters. While Goldman Sachs covers more of the business cycle and capital markets, investors will get an inside look into what the consumer economy is going through today.

Focusing not only on the results for Bank of America’s quarter but also on how its different segments and key performance indicators (KPIs) performed during the past quarter, investors could land on different conclusions for the stock itself and for the broader economy as well. Beginning with a Wall Street analyst check, here’s how Bank of America fares out in its industry and in the eyes of investors.

Wall Street’s Take on Bank of America Stock

There’s a reason why Wall Street analysts now forecast up to $0.92 in earnings per share (EPS) in Bank of America stock for the same quarter next year. This would be a net 12.2% growth rate from today’s $0.82 EPS level, and landing on double-digit financial growth for a financial institution is not something investors come by very often.

Knowing this, it would also make sense for analysts from Barclays to keep their Overweight rating on Bank of America stock as of January 2025. This time, however, these analysts also boosted their valuations on the company up to $58 a share, calling for up to 23.4% upside from where the stock trades today.

Now that the stock trades at 95% of its 52-week high, it looks like the market’s momentum is fixed on giving Bank of America stock another bullish run this year. The underlying fundamentals seen in the quarterly results would justify these views, as investors will find out shortly.

Bearish traders realize that the economy, especially the consumer economy, has gotten better, as judged by the credit quality and volumes seen in commercial banks like Bank of America. This is why investors can notice the 1.4% decline in the stock’s short interest over the past month as a sign of bearish capitulation.

Fundamentals Push for Growth in Bank of America

As a commercial bank, its balance sheet is expected to hold many debt products, such as car loans, credit cards, and mortgages. This means that if Goldman Sachs is right about its view on credit markets, then yields will come down and significantly boost the value of these products due to their inverse relationship.

All told, this would amplify the value of the bank’s balance sheet and, therefore, its book value per share. Considering that Bank of America stock trades at a price-to-book (P/B) of 1.4x today, a steep discount to the broader finance sector and its average 2.6x P/B multiple can be exploited by investors today.

Now, here is where Bank of America really shows improvements in the consumer credit space and aligns the stock to the potential upside that is being called for by Wall Street today. Inside the quarterly earnings presentation, management points to the first decline in net charge-offs in over a year, meaning fewer credit accounts defaulted on their obligations.

More than that, provisions for net credit losses also declined for the first quarter in over a year, signaling that management has a more positive outlook for the future of credit markets and consumer quality. Looking into Bank of America's residential mortgage business can give investors another indicator for the economy.

Bank of America's new residential mortgage origination rose to $6.6 billion for the quarter, a 24.5% increase from the $5.3 billion originated over the past quarter. Besides the net origination boost, FICO scores on average also improved from 772 last quarter to 775 this quarter, reiterating the bullish themes behind a potential consumer market and credit market recovery.

Investors should not be surprised to see recent institutional buying activity, such as the 1.2% boost in holdings from Gateway Investment Advisers as of January 2025. This allocation brought their net position to a high of $93.7 million today, another bullish gauge for investors to consider in the commercial economy.