BANK OF AMERICA CORP. $53 (New York symbol BAC; Income Portfolio, Finance sector; Shares outstanding: 4.5 billion; Market cap: $238.5 billion; WSSF Rating: Above average) is the second-largest bank in the United States by assets, after Citigroup.
The company has used big acquisitions to expand in the past few years. In 2004, it acquired FleetBoston Financial for $47.3 billion in cash and stock. In 2006, it paid $34.6 billion in cash and stock for credit card specialist MBNA Corp. It recently agreed to pay $3.3 billion for U.S. Trust Corporation, which provides asset management to high net worth clients. The company aims to complete this purchase in the first quarter of 2007.
Growth by acquisition can be a source of risk. But these purchases increased Bank of America’s presence in markets that it would probably never reach through internal growth.
The company is now cutting its exposure to certain overseas markets. It just sold its Brazilian operations for a $720 million (pre-tax) gain. Bank of America is also taking steps to improve the quality of its investment portfolio, including selling $100 billion of securities in the next few years. That will give it more cash to invest in its core operations.
To put these figures in context, Bank of America earned $1.16 a share (total $5.3 billion) in the three months ended December 31, 2006, up 31.8% from $0.88 a share ($3.6 billion) a year earlier. Revenue grew 34.1%, to $18.5 billion from $13.8 billion.
The company is making good progress integrating its new businesses. Consequently, earnings in 2007 should rise to $4.90 a share, and the stock trades at 10.8 times that figure. The $2.24 dividend yields 4.2%.
Bank of America is a buy.