Bank of America (NYSE:) is one of the biggest financial institutions worldwide, serving millions of individual consumers, businesses, and governments.

It offers many financial services including investment, risk management and banking.

According to market capital, Bank of America currently ranks second in the United States as the largest diversified bank. Valued at $349 billion, it comes after only JPMorgan Chase & Co. (NYSE:). The ongoing surplus cash supply is a huge benefit to banks.

Monetary policy and the stimulus check frenzy are powerful growth engines that continue to boost its financials. This is evident in Bank of America’s most recent results. This stock has my full support. (See BAC stock charts on TipRanks)

Cheap Interest Rates, Strong Profitability

The dead-cheap (and continuously declining) interest rate climate has caused investors in the banking industry to worry for years now.

A decline in interest rates generally leads to banks having lower lending margins. Lower rates can flatten the yield curve which often has negative impacts on net interest incomes. This is in keeping with the principle that banks are able to borrow for short periods and loan long term.

Bank of America, like its peer banks, has felt the pain of lower rates. The company’s latest quarter reflected that. Bank of America saw its net interest income drop by 6% from 10.2 billion to Q2 2021.

The company still managed to achieve a net profit of $9.2billion, its highest quarterly result in history. Strong growth in consumer deposits of 21%, to $979 billion was the driver. Lower credit costs, $3.7-billion more provision for credit losses and record consumer inflows into investment products were also factors.

Massive Buybacks to Boost EPS

Since suspending buybacks during the Great Financial Crisis, Bank of America has been gradually boosting repurchases, rewarding its shareholders richly.

The company’s record repurchases in 2019 was around $28 million. To be prudent, management stopped buybacks at the beginning of the pandemic. But it is now accelerating them. Buybacks totaled $4.21 trillion in Q2.

Due to record bank profitability, the buybacks range could return to the $7 billion-range per quarter. The company could buy back approximately 8.3% of its outstanding shares each year at the current market cap, assuming a return of around $28 billion.

EPS should be greatly benefited by buybacks. Additionally, the stock’s current dividend yield of around 1.9% should allow shareholders to enjoy a capital yield yield in excess of 10%.

Valuation

Bank of America is currently trading at 14 times its next 12-month net income, which should be a rather reasonable multiple.

These times have seen an excess of cash, which will continue to be a benefit for the company via more deposits and investor flows. As mentioned, the aggressive buybacks by Valuation Bank of America should also act as a powerful EPS catalyst.

Investors should be encouraged to continue buying stock at current levels by strong dividend increases in the future. This should avoid a price compression. After passing its stress tests, the company saw its latest DPS increase of 17%.

Wall Street’s Take

Turning to Wall Street, Bank of America has a Moderate Buy consensus rating on the stock, based on six Buys, four Holds, and one Sell assigned in the past three months. At $42.32, the average BAC price target implies 7% upside potential.

Disclosure: Nikolaos Sismanis had no position at the time this article was published.

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