What is BAC's Intrinsic value?

Bank of America Corp (BAC) Intrinsic Value Analysis

Executive Summary

As of June 19, 2025, Bank of America Corp's estimated intrinsic value ranges from $36.77 to $43.05 per share, depending on the valuation methodology applied.

Valuation Method Fair Value (USD) Implied Upside/Downside
Dividend Discount Model (Multi-Stage) $43.05 -4.5%
Dividend Discount Model (Stable) $36.77 -18.4%

Is Bank of America Corp (BAC) undervalued or overvalued?

With the current market price at $45.06, the stock appears to be moderately overvalued.

Understanding Intrinsic Value

Intrinsic value represents the "true" worth of a company based on its fundamentals rather than market sentiment. We've employed multiple methodologies to triangulate Bank of America Corp's intrinsic value, including:

  1. Dividend Discount Model (DDM): Values the company based on expected future dividend payments

Weighted Average Cost of Capital (WACC)

The cost of capital is a critical factor in valuation models, representing the required return for investors.

WACC Component Low High
Long-term bond rate 3.9% 4.4%
Equity market risk premium 4.6% 5.6%
Adjusted beta 0.91 1.25
Cost of equity 8.1% 11.9%
Cost of debt 5.0% 5.0%
Tax rate 6.2% 6.8%
Debt/Equity ratio 1.98 1.98
After-tax WACC 5.8% 7.1%

Valuation Methods

2. Dividend Discount Model (DDM)

The DDM values a company based on its expected future dividend payments. We used two approaches:

Multi-Stage DDM:

  • Current payout ratio: 34.2%
  • Stable payout ratio: 90.0%
  • Growth transition: 5 years
  • Cost of equity: 10.0%
  • Long-term growth rate: 1.0%
  • Fair value: $43.05 (-4.5% from current price)

Stable DDM:

  • Stable payout ratio: 70% (Low) to 90% (High)
  • Cost of equity: 11.9% (Low) to 8.1% (High)
  • Long-term growth rate: 0.5% (Low) to 1.5% (High)
  • Fair value range: $23 to $51
  • Selected fair value: $36.77 (-18.4% from current price)

Key Financial Metrics

Metric Value
Market Capitalization $339386M
Enterprise Value $1059660M
Trailing P/E 12.18
Forward P/E 11.46
Trailing EV/EBITDA 0.00
Current Dividend Yield 287.16%
Dividend Growth Rate (5Y) 5.31%
Debt-to-Equity Ratio 1.98

Investment Decision Framework

To determine the most reliable intrinsic value estimate, we weigh each valuation method based on:

  1. Forecast Certainty: DCF methods rely on long-term projections, while earnings power value focuses on current normalized earnings
  2. Business Model Alignment: Dividend models are more appropriate for mature companies with established dividend policies
  3. Historical Accuracy: How well each method has predicted fair value historically

Valuation Weight Matrix

Valuation Method Weight Weighted Value
Dividend Discount Model (Multi-Stage) 57% $8.61
Dividend Discount Model (Stable) 43% $5.52
Weighted Average 100% $40.36

Investment Conclusion

Based on our comprehensive valuation analysis, Bank of America Corp's weighted average intrinsic value is $40.36, which is approximately 10.4% below the current market price of $45.06.

Key investment considerations:

  • Historical dividend growth of 5.31%

Given these factors, we believe Bank of America Corp is currently moderately overvalued with the potential for long-term appreciation based on the company's growth trajectory and financial strength.