What is BAC's Intrinsic value?

Bank of America Corp (BAC) Intrinsic Value Analysis

Executive Summary

As of May 22, 2025, Bank of America Corp's estimated intrinsic value ranges from $44.84 to $51.72 per share, depending on the valuation methodology applied.

Valuation Method Fair Value (USD) Implied Upside/Downside
Dividend Discount Model (Multi-Stage) $44.84 +3.7%
Dividend Discount Model (Stable) $51.72 +19.6%

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

With the current market price at $43.25, the stock appears to be moderately undervalued.

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 1.05 1.46
Cost of equity 8.7% 13.0%
Cost of debt 5.0% 5.0%
Tax rate 6.2% 6.8%
Debt/Equity ratio 1.94 1.94
After-tax WACC 6.1% 7.5%

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: 10.9%
  • Long-term growth rate: 3.5%
  • Fair value: $44.84 (3.7% from current price)

Stable DDM:

  • Stable payout ratio: 70% (Low) to 90% (High)
  • Cost of equity: 13.0% (Low) to 8.7% (High)
  • Long-term growth rate: 2.5% (Low) to 4.5% (High)
  • Fair value range: $24 to $79
  • Selected fair value: $51.72 (19.6% from current price)

Key Financial Metrics

Metric Value
Market Capitalization $326973M
Enterprise Value $1047247M
Trailing P/E 11.74
Forward P/E 11.25
Trailing EV/EBITDA 0.00
Current Dividend Yield 282.25%
Dividend Growth Rate (5Y) 5.31%
Debt-to-Equity Ratio 1.94

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% $8.97
Dividend Discount Model (Stable) 43% $7.76
Weighted Average 100% $47.79

Investment Conclusion

Based on our comprehensive valuation analysis, Bank of America Corp's weighted average intrinsic value is $47.79, which is approximately 10.5% above the current market price of $43.25.

Key investment considerations:

  • Historical dividend growth of 5.31%

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