Valuation Report

Intrinsic Value $17.7 > $14.1 Current PricePremium: 25.5%

Alfonso Corona III

Jaclyn Khayat

Cassi Spencer

Prepared for Financial Manager, Dr. Lawrence Souza

BUY

● Bank of America Background

● Financial Analysis

● Stock Valuation

● Recommendation

Overview

● 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

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)

Products and Services● Consumer & Corporate Banking ● Investment Banking ● Wealth Management ● Residential & Mortgage Home Equity Loan ● Online Banking ● Foreign Exchange ● Private Banking

Leadership

Catherine P. BessantTechnical Officer, COO 1982 - Present (34 years)Previous Companies:N/A

Sheri B. BronsteinHR Executive2000 - Present (16 years)Previous Companies:JP Morgan, Global Banking and Markets

Paul M. DonofrioCFO1999 - Present (17 years)Previous Companies:UBS, Kidder, Peabody & Co.US Navy

Brian MoynihanChairman, CEOLaw Degree, Notre Dame1995 - Present (21 years)Previous Companies:Fleet Boston

Dean AthanasiaPresidentMBA, Wharton2004 - Present (12 years)Previous Companies:Fleet Boston

Geoffrey S. GreenerCRO2007 - 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.”

Banking RankingRank 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

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

Technical AnalysisTarget Price $18.2 > $14.1 Current Price Premium: 29%

● Upward Trend Line

● Trading Above Resistance

● Approach to Resistance

Downward MomentumVolume

Resistance Line

Support Line Trend Line

Financial ConditionFinancial 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

Financial ConditionFinancial 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

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

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 5Formula: PV = Expected EPS / (i-g)Stock Value = 1.5 / (10-2) = $18.8

Valuation: Multiple ApproachIntrinsic Stock Value $17.3 > $14.1 Current Stock Price Premium: 22.7%

EPS in 2017 g

1.5 1.5P/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 10xFormula: PV = P/Et+1* M =$1.4*12

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%

Weighted Stock ValuationIntrinsic 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

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

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

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%