As we can see, price has remained pretty much steady over the past two months.
However, Q2 results continue to affirm my belief that the stock has more room left to run.
Previously, I had commended the bank on impressive growth in net interest income in Q1, particularly as a result of loan growth.
For the most recent quarter, we see that average loans and leases increased (or at least remained constant) across Bank of America’s business lines:
Source: Bank of America 2Q17 Financial Results
While overall deposits have seen a decrease in the past two quarters (as a result of a decrease in non-interest bearing deposits), interest-bearing deposits saw an uptick from 23% to 26%.
Bank of America is one bank that has been cited by analysts as having the potential to benefit the most among its peers from interest rate growth in the coming years, and this is clearly being evidenced by the growth we are seeing in loans and interest-bearing deposits.
Of course, all growth comes with risks – and it’s worth bearing in mind the potential for growth to level off in the event that interest rate hikes in the United States do not occur as quickly as markets are anticipating.
For instance, last month there was speculation that Janet Yellen would delay further interest rate rises after Consumer Price Index (CPI) and retail sales data came in lower than expected. In this regard, there is a risk that we may not see further rate hikes until 2018.
Fundamentally, I still see a solid growth trajectory for net interest income going forward and expect that loan growth will remain solid. A decline in non-interest based deposits might be a concern, but I do not see this as a big risk factor so long as loan and interest-bearing deposit growth remains sufficient.
It is possible that price growth could stall somewhat if…