Bank of America just told investors that its stock is cheap

  • Bank of America has announced plans to buy back an additional $US5 billion of its own stock, just five months after announcing a $US12 billion repurchase.
  • This latest buyback activity signals to investors that the firm sees its stock as attractively priced, and the action itself should be accretive to shares.
  • The Federal Reserve gave approval for the capital plans of many Wall Street banks back in June, and this is an extension of that.

Bank of America thinks its stock is cheap. And to show you that it’s serious, the firm plans to buy back more of its own shares.

Just five months after announcing plans to repurchase $US12 billion of common stock over a one-year period, the bank on Tuesday said it would buy back an additional $US5 billion by June 30.

With this latest development, Bank of America has once again signalled to investors that it sees its stock as undervalued – hence its willingness to fork over cash to buy shares at current levels. And in a win-win of sorts, by reducing the number of shares outstanding, the firm will drive the price higher for its remaining stock.

The firm could be reacting to what it perceives as further upside to its stock, now that the Senate has passed Republicans’ tax bill. Banks are expected to get a boost from the tax plan, which is intended to improve US growth and allow firms to pay lower taxes.

Financial firms have already been feeling the positive effects of a successful tax bill, having led gains in the S&P 500 over the past week. The sector has combined with telecom stocks to supplant tech as the best-performing segment of the market.

Bank of America and other Wall Street heavyweights were emboldened to buy back more of their own stock back in late June, when the Federal Reserve gave across-the-board approvals for their financial plans – most of which heavily featured share repurchases and dividend increases.

The firm’s continued willingness to buy back shares comes with its stock already up 31% year-to-date. Still, that performance lags mega-cap tech titans like Amazon and Apple, which have soared roughly 50% apiece over the same period.

CEO Brian Moynihan put it in simple terms at a conference in September: “Our stock’s a good buy and we’ll continue to buy it until the cows come home.”

Bank of America’s stock climbed 0.9% in premarket trading on Tuesday, a day after surging 3.4%.

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