Bank of America fell 5% on a $1.2 billion penalty and soft trading. Core profit of $1.08 per share plus 8% rate income growth points to 22% upside to $62.56.
Key points
- $1.08 per share of core profit in Q3 FY26 after adding back the $1.20 billion penalty, up from a year ago.
- $16.61 billion of net interest income in Q3 FY26 on an FTE basis, up 8% from a year ago on loan growth.
- 10.9% capital ratio called CET1 at Sep 30 FY26, above the 10.0% minimum despite an $8.30 billion payout.
The call
Market sees a penalty hit bank with fading trading. At $51.29 per share on Oct 14 FY26, the price pays 12.2 times trailing GAAP profit of $4.21 per share for the year to Sep FY26. That values weak fee growth with no credit for loan repricing.
Quarterly revenue holds near 30 billion dollars- Revenue reported
- My forecast
Fact table to Q2 FY26 plus Q3 FY26 8-K; forecasts are mine.
I see a Main Street lender still compounding. Average loans rose 6% from a year ago and deposits held above $2 trillion in Q3 FY26. With 8% NII growth guided for FY27, core profit can reach $5.21 per share for FY27 and fund buybacks.
Valuation
| Driver | Figure |
|---|
| FY26E adjusted EPS | $4.52 per share |
| FY27E EPS | $5.21 per share |
| Target multiple | 12 times |
| 12-month target | $62.56 per share |
| Annual dividend | $1.28 per share for FY26 |
Twelve times fits a large bank earning near 15% on tangible equity excluding the charge in Q3 FY26. The dividend adds a 2.5% yield at $51.29 per share on Oct 14 FY26. If loan growth stalls, the multiple compresses and the upside fades.
Risks
- Credit turns as jobs soften, watch total net charge offs rising above 0.60% of loans from 0.44% in Q3 FY26.
- Deposit costs jump as savers chase yield, watch total deposit rate well above 1.49% in Q3 FY26 on flat balances.
- Markets and deal fees stay soft, watch sales and trading revenue down again in Q4 FY26 after a 5% drop in Q3 FY26.
What would change my mind
I would turn cautious if loan and deposit growth stall while remediation and technology costs keep core expenses growing faster than revenue into FY27.