The market is too pessimistic about next year's lending profits, but tighter capital and uncertain compliance costs warrant a lower target. I retain Buy and reduce my twelve-month target to $59.04.
Key points
- $70.5 billion of 2027 lending income after funding costs supports my earnings forecast.
- $3.9 billion of capital headroom remains under January's scheduled rules, using September's balance sheet.
- $59.04 a share is my October 2027 target, reduced for expenses and slower buybacks.
The call
The market expects too little lending growth. At my valuation multiple, the current price requires $4.19 a share of 2027 earnings. With my other assumptions unchanged, that means $64.8 billion of lending income, slightly below my 2026 forecast. Investors are questioning whether compliance spending and weaker trading will consume the recovery.
Lending and wealth offset weaker deal and market income ($ billions)BAC Q3 supplemental, October 14, 2026; GAAP income categories, rounded.
I expect lending growth to outweigh those pressures. My 2027 lending-income forecast rises 8.5%, supported by loan growth and replacement of low-yielding securities. However, a competitor's stronger deal results suggest this quarter's weakness was not entirely industry-wide. I reduce the target rather than assume trading rebounds or compliance costs disappear.
Valuation
| My valuation inputs | Estimate |
|---|
| 2027 total revenue | $130.5 billion |
| 2027 operating expenses | $78 billion |
| 2027 credit provisions | $7 billion |
| 2027 diluted earnings | $4.82 a share |
| October 2027 earnings multiple | 12.25 times |
| October 2027 target | $59.04 a share |
Earnings use a 21.5% tax rate, $1.5 billion of preferred dividends and 7.1 billion diluted shares for 2027. The multiple rewards recurring deposits and wealth fees but discounts higher bond yields, compliance uncertainty and weaker capital flexibility. A recession scenario produces roughly $32 a share, making this a measured Buy, not a Strong Buy.
Risks
- Compliance work could cost more than management expects; watch recurring expenses and any additional regulatory restrictions.
- Higher rates could raise deposit costs while hurting trading and bond values; watch deposit pricing and quarterly lending income together.
- Capital requirements could restrict repurchases further; watch total capital, the binding regulatory measure, rather than common-equity capital alone.
What would change my mind
I would abandon the Buy if lending income remains below $16 billion for two consecutive quarters through June 2027 while deposit costs rise.
