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Why Bank of America Stock Jumped Today

By Joe Tenebruso - Oct 14, 2021 at 6:01PM

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The banking giant's profits are surging as the economy recovers.

What happened

Shares of Bank of America ( BAC -2.27% ) rose 4.5% on Thursday after the financial services titan delivered solid third-quarter results.  

So what

Bank of America's revenue, net of interest expense, climbed 12% year over year to $22.8 billion. That was comfortably above Wall Street's estimates for revenue of $21.8 billion. 

The bank holding company enjoyed broad-based growth across most of its major business segments. Notably, strong deposit and loan growth fueled a 10% rise in net interest income, to $11.1 billion.

Meanwhile, record asset-management fees drove a 17% increase in wealth- and investment-management revenue, to $5.3 billion. And a 23% jump in investment-banking fees boosted that segment's revenue to $2.2 billion.

A rising bar chart.

Investors cheered Bank of America's third-quarter growth metrics. Image source: Getty Images.

A $1.1 billion reduction in loan loss reserves, driven by an improving economy, also lifted Bank of America's profits. The bank's net income, in turn, soared 58% to $7.7 billion, or $0.85 per share. That, too, was well above analysts' estimates for earnings per share of $0.71. 

Now what

Financial stocks tend to do well as the economy rebounds from a downturn, as loan demand rises and default rates fall. Moreover, rising interest rates, which often accompany improving economic conditions, tend to positively impact banks' profit margins. Steadily increasing vaccination rates and massive stimulus spending are likely to further these trends in the coming quarters.

This favorable outlook has driven investors to bid up Bank of America's share price by nearly 50% so far this year. But its stock still trades for less than 14 times its projected earnings for 2021 and only about 1.5 times book value. That leaves plenty of room for continued gains in the years ahead.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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