The Shocking Declaration About Bank of America's Future

With 2013 behind us, Bank of America CEO Brian Moynihan announces where he thinks the company will be going over the next three years.

Jan 26, 2014 at 2:34PM

2013 marked a year where Bank of America (NYSE:BAC) seemingly returned to normalcy. But where is the bank headed now? 

Bac

2013 considerably lacked the negative Bank of America was used to. The absence of that ill will meant Bank of America shareholders could feel better about owning the company, but in reality, it meant a stunning return to profitability for the bank. Consider that in the fourth quarter of 2013 Bank of America announced earnings per share of $0.29, which was more than what it earned in all of 2012 ($0.25).

The chart of its net income since 2008 also shows a rather eye-opening story as well:

Images
Source: Company SEC Filings and Investor Relations.

Bank of America earned almost as much in 2013 -- $11.4 billion -- as it did in the five years between 2008 and 2012, where the total net income stood at $13.6 billion.

But the past is the past, and CEO Brian Moynihan recently provided one critical insight about the future.

Astounding profitability growth
Although Bank of America had a great 2013, the reality is, it actually remained less profitable on a comparable basis to peers like the aforementioned JPMorgan Chase, Wells Fargo, and Citigroup, as shown in the chart below:

Images
Source: Company Investor Relations.

Bank of America did point to the fact that its return on average tangible shareholder's equity was higher, at 7.1% on the year, but even that level would place it among the lowest of its peers.

However Brian Moynihan was notably not enthused with such low return numbers and said:

"We are looking to get to the point where we are returning 1% on assets, which translates into a 14% return on tangible common equity. Those are the types of levels that we see ourselves looking to achieve over the course of the next three years."

Put simply, Moynihan expects that Bank of America will be able to nearly double its profitability in the coming years.

Bank of America's stock has been on quite a run since 2012, as shown in the chart below:

BAC Chart

BAC data by YCharts.

And as a result, many have begun to question if it is still worth buying. However, when you consider that its price to tangible book value -- a key measure of bank valuation -- still trails both Wells Fargo's and JPMorgan Chase's, the rapid rise in its price doesn't pose a major concern.

Bank

Price to Tangible
Book Value

Wells Fargo

2.2

Bank of America

1.3

JPMorgan Chase

1.5

Citigroup

1.0

The value of a company and an investment goes beyond simply its relative valuation to its peers, into factors like its business, management, and much more. However, Bank of America is seemingly on the right track in those areas as well.

And when you factor in that the CEO believes in just three years it can essentially double its profitability, Bank of America still presents a compelling consideration.

The one stock to buy this year
Perhaps you don't want to wait for three years for Bank of America to rebound, and you understand there's a huge difference between a good stock and a stock that can make you rich. We're here to help. The Motley Fool's chief investment officer has selected his No. 1 stock for 2014, and it's one of those stocks that could make you rich. You can find out which stock it is in the special free report "The Motley Fool's Top Stock for 2014." Just click here to access the report and find out the name of this under-the-radar company.

Fool contributor Patrick Morris owns shares of Bank of America. The Motley Fool recommends Bank of America and Wells Fargo. The Motley Fool owns shares of Bank of America, Citigroup, JPMorgan Chase, and Wells Fargo. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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