Bank of America shares fall 4% after third-quarter failure. Here’s where stocks could go further

Bank of America (BAC:NYSE) stock fell about 4% in pre-market trading on Wednesday, Oct. 14, to around $52, after the bank’s third-quarter profit fell short of estimates. Reported earnings were $0.91 per share, up from $1.04 a year earlier, including a $1.2 billion charge related to the anti-money laundering sanction announced Tuesday by FinCEN alongside the OCC action. A separate sanctions agreement with OFAC added $11.6 million.

The fine made headlines, but it does not explain the failure. Removing it, Bank of America earned $1.08 per share, still below the $1.10 analysts expected. This breaks its recent streak of profits.

The Bond Desk missed its own guide

At the Barclays conference on September 14, CEO Brian Moynihan guided sales and trading to be roughly flat year over year, at around $5.4 billion, and investment banking fees at between $1.6 billion and $1.8 billion. Investment banking reached $1.8 billion, the top of that range. Trading fell 5% to $5.1 billion, driven down by fixed income, currencies and commodities.

This represents a shortfall of $300 million compared to a forecast made just two weeks before the end of the quarter. The fine is the highest number, but it is unique: $0.17 per share, reserved only once.

Net interest income still does the heavy lifting

Net interest income increased from $13.70 billion in the June quarter of 2024 to $16.00 billion in the second quarter of 2026, with only a flat period at the end of the year. The $16.4 billion announced Wednesday was up 8% from the previous year. This line now represents around 55% of revenue, so an up and down trading quarter has virtually no impact on the earnings base.

Average loans increased 6% and the bank returned $8.3 billion to shareholders, including $6 billion in buybacks.

Is this a BofA problem or a bond market problem?

Partly the market. JPMorgan Chase (JPM:NYSE) reported a surprise drop in bond revenue on Tuesday, down 4% to $5.4 billion. But Citigroup (C:NYSE) increased its bond market revenue by 4%, to $4.4 billion in the same quarter, so the bond sell-off doesn’t explain all of BofA’s deficit.

Either way, the market was not paying for a rebound in trading. At the start of the report, the stock was trading at around 11.1x forward normalized earnings, below its average of 11.8x since the end of 2023 and well below its peak of 13.6x.

What is BAC stock worth without revaluation

The question I wanted to answer: If Bank of America never recovers its old multiple, will the stock still perform? So I set the exit P/E at 11x, close to its prior forward earnings multiple, and let the return come solely from earnings growth, buybacks, and dividends. My income grows 4.9% per year through 2030, which is slower than net interest income alone because I provide little help with trading and closing deals. The net profit margin remains at 27.1%.

That takes me to about $75 per share by the end of 2030, including dividends, or about $71 on the stock price alone. Measured from the pre-earnings close of $53.96, this represents a total return of 39.2%, or approximately 8.2% per year. TIKR’s September model was $80 for the same date, down from $58. The target is lower, but the yield is almost unchanged, because the stock has already made up the difference.

Conclusion

A 4% drop is a backlash to a quarter where the fine was one-off and the trade deficit relative to Moynihan’s own guide stands at about 3 cents per share after taxes. The bank’s main driver, net interest income, continues to grow. At 11x earnings, around 8% per year seems like a fair base case rather than a bargain. January’s fourth-quarter report is a test: if fixed income stabilizes while net interest income continues to climb, today’s price will look too conservative.

So, what is Bank of America stock really worth?

TIKR allows you to predict the future price of any stock in less than a minute. Simply enter a few assumptions into TIKR’s valuation model and see what BAC stock could be worth. Start with Wall Street consensus estimates or adjust the data to reflect your own view of the business. Its use is free.

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