DCF Studio

    BAC · NYQ · Financial Services

    Bank of America Corporation

    Also onShortfallConsensus DriftCrosscheck

    Implied value per share

    USD 41.05

    Market price

    USD 57.73

    Implied upside

    -28.9%

    5-year forecast · Perpetuity growth terminal value · Mid-year discounting · Base case

    Wrong toolThis is a financial. Banks and insurers report no meaningful operating income, and capex and working capital do not mean what a free-cashflow model assumes, so a DCF will misprice it. The model below runs on best-effort numbers - treat it as an illustration, not a valuation.
    AdjustedReported capital expenditure averages just 0.00% of revenue, which is too low to be the company's real investment - property trusts and similar structures invest through lines that are not reported as capex. Capex has been set to 2.05% of revenue so the forecast is not handed free growth. The accounts do not separate depreciation from amortisation, so the combined charge is used - if a large part of it is amortisation of an acquisition, the reported capex is probably right and this substitution is not. Override it if the reported figure is right.

    Value Per Share

    Perpetuity growth
    USD 41.05-28.9%
    Exit multiple
    USD 60.17+4.2%
    Market price
    USD 57.73

    Same forecast, different terminal treatment. Percentages vs price.

    Forecast Cashflows

    Reporting currency (USD). Outflows negative.

    0bn15bn31bnFY26FY27FY28FY29FY30
    Nominal FCFFDiscounted to todayUSD
    LineFY26FY27FY28FY29FY30CAGR
    RevenueUSD 119.9bnUSD 127.1bnUSD 134.7bnUSD 142.8bnUSD 151.4bn+6.0%
    EBITUSD 38.7bnUSD 41.0bnUSD 43.4bnUSD 46.0bnUSD 48.8bn+6.0%
    NOPATUSD 31.3bnUSD 33.2bnUSD 35.2bnUSD 37.3bnUSD 39.6bn+6.0%
    Add depreciation & amortisationUSD 2.5bnUSD 2.6bnUSD 2.8bnUSD 2.9bnUSD 3.1bn+6.0%
    Less capital expenditureUSD -2.5bnUSD -2.6bnUSD -2.8bnUSD -2.9bnUSD -3.1bn+6.0%
    Less increase in working capitalUSD -6.8bnUSD -7.2bnUSD -7.6bnUSD -8.1bnUSD -8.6bn+6.0%
    Free cashflow to firmUSD 24.5bnUSD 26.0bnUSD 27.6bnUSD 29.2bnUSD 31.0bn+6.0%
    Discount factor0.95990.88460.81510.75110.6921-
    Present valueUSD 23.6bnUSD 23.0bnUSD 22.5bnUSD 22.0bnUSD 21.5bn-2.3%
    Present Value Of The ForecastUSD 112.5bn

    Discount Rate

    Source shown per component. All overridable above.

    Risk-free rate5.00%US 10-year Treasury (^TNX)
    Equity risk premium5.50%Market assumption
    Beta1.110Reported 1.164, pulled toward 1.0 (Blume)
    Cost of equity11.10%Risk-free + beta x equity risk premium
    Cost of debt7.00%Implied cost of debt of 22.7% is not a credible funding cost, so risk-free + 2bp is assumed instead. Interest expense and reported debt are measuring different things - common for banks, whose interest expense includes deposits that total debt excludes.
    Market capitalisationUSD 403.7bn52.5% of capital
    Total debtUSD 365.9bn47.5% of capital, book value as a proxy
    Tax rate18.9%Effective, capped at statutory
    WACC8.52%E/V x Re + D/V x Rd x (1 - t)

    Terminal Value

    Perpetuity growth is intrinsic. The exit multiple defaults to the company's current EV/EBITDA, so it answers a different question - what the shares are worth if today's rating holds and EBITDA grows as forecast.

    Perpetuity growth at 2.50%

    Value per shareUSD 41.05

    75% of EV

    Forecast FCFF, final year
    USD 31.0bn
    Capex at depreciation, working capital in reinvestment
    USD 39.6bn
    Less reinvestment at g/ROIC (29.3% of NOPAT)
    USD -11.6bn
    Capitalised
    USD 28.0bn
    ROIC (WACC floor)
    8.5%
    Terminal value, undiscounted
    USD 476.0bn
    Terminal value, discounted
    USD 329.4bn
    Enterprise value
    USD 441.9bn
    Less net debt
    USD 126.6bn
    Equity value
    USD 315.3bn

    Exit at 13.3x EBITDA

    Value per shareUSD 60.17

    81% of EV

    Terminal value, undiscounted
    USD 688.1bn
    Terminal value, discounted
    USD 476.2bn
    Enterprise value
    USD 588.7bn
    Less net debt
    USD 126.6bn
    Equity value
    USD 462.1bn

    Spread between methods: 38%.

    Sensitivity

    Value per share (USD) by discount rate and long-run growth.

    Long-run growth
    Discount rate1.50%2.00%2.50%3.00%3.50%
    6.52%59.2059.4959.7960.0960.39
    7.52%48.6748.9249.1649.4149.66
    8.52%40.6440.8541.0541.2641.47
    9.52%34.3134.4934.6734.8535.03
    10.52%29.2129.3729.5229.6829.84

    Outlined: this model. Green text: above today's price of 57.73. Shading: distance from this model's own value.

    Priced In

    What each input would have to be to justify the current price, one at a time.

    InputModelImpliedGap
    Revenue growth, every year6.0%14.1%+8.1pp
    EBIT margin32.2%41.0%+8.7pp
    Discount rate8.5%6.7%-1.8pp
    Download as Excel

    Live formulas, not pasted numbers - edit a driver and the workbook reprices.

    Yahoo Finance and RBA data. General information, not advice. Methodology.