Bank of America (BAC -2.96%) is the second-largest bank by assets in the U.S. and has become one of the market's most popular publicly traded bank stocks. Warren Buffett and Berkshire Hathaway have made Bank of America the second-largest position in their massive $329 billion equities portfolio. With a current market capitalization of more than $256 billion, can it reach $1 trillion by the year 2030? Let's take a look.
What would need to happen
I don't think anyone can say that Bank of America's CEO Brian Moynihan hasn't done a great job transforming the bank over the past decade after shares fell below $4 following the Great Recession.
The bank has greatly improved its deposit base and now has $1 trillion in mostly low-cost retail deposits, which tend to stick around much longer in a rising-interest-rate environment. Bank of America has built one of the leading commercial lending franchises in all of banking. Its investment banking division is now considered a powerhouse and one of the big players in the industry, and the bank has invested heavily in its technology stack, which is really starting to pay off. Here's how the bank's market cap has grown over the years.
Between 2010 and now, Bank of America's market cap has grown from about $130 billion to roughly $256 billion, at one point reaching close to $400 billion in 2021 before falling back this year. Banks tend to trade in relation to their tangible book value (TBV), or net worth, or in relation to earnings.
As you can see, Bank of America has grown its TBV from about $118 billion in 2010 to more than $170 billion now. At its high point, the bank has traded for close to two times TBV. So, that means it would need to grow TBV to about $500 billion for it to reach a $1 trillion market cap, based on historical TBV valuations. Bank of America would also have some work to do in terms of earnings.
Bank of America made close to $32 billion of net income in 2021. The bank has historically traded around an earnings multiple of nine and 20 since 2015. That means Bank of America would likely need an annual net income of around $50 billion to receive a $1 trillion market cap at a 20 times earnings multiple.
Will Bank of America hit $1 trillion by 2030?
I certainly think Bank of America is a great stock, but I think it will be a challenge for the bank to reach a $1 trillion market cap by 2030. Even if the bank could reach three times TBV, it would still need to grow TBV a lot faster than it has in the past. Earnings would need to ramp up as well. Thanks to higher interest rates, Bank of America's earnings should get a boost, but I still think reaching a $1 trillion market cap by 2030 is a tall task right now. However, I'm sure Bank of America could hit $1 trillion sometime over the next few decades, making it a good long-term buy.