How to Play BAC Stock as Tariffs Create Ambiguity Over Rate Cuts?

Bank of America BAC is one of the most interest rate-sensitive among big banks. So, when the Federal Reserve lowered the interest rates by 100 basis points last year, the company’s net interest income (NII) benefited from it. Fixed-rate asset repricing, higher loan balance and gradual decline in deposit costs drove the sequential increase in NII since the second quarter of 2024, which was partly offset by lower interest rates.Net Interest Income Image Source: Bank of America Corp.The central bank is now pursuing a cautious rate-cutting policy because of stubborn inflation, which is likely to get further aggravated due to tariffs imposed on Canada, Mexico and China by the Trump administration (effective from tomorrow, Feb. 4). Economists and policymakers generally view tariffs as a factor that could drive up prices for U.S. businesses and consumers, at least in the short term, while potentially slowing economic growth over time. Additionally, some of Trump’s other proposed policies—including mass deportations, significant tax cuts, and deregulations—have added complexity to the Fed’s decision-making process as it considers the timing and scale of future interest rate cuts after pausing during the January FOMC meeting.Bank of America is seeing an upside in NII in 2025, driven by decent loan demand, higher-for-longer interest rates, robust deposit balance and solid economic growth. The company expects a sequential rise in NII for all the quarters this year, with growth likely to accelerate in the second half of the year and the fourth-quarter number likely to touch the $15.5-$15.7 billion level.Other Factors to Watch for Bank of AmericaBranch Expansion & Digital Initiatives: Bank of America’s aggressive branch expansion across the United States as part of a broader strategy to solidify customer relationships and tap into new markets will drive NII growth over time. The company announced plans to open more than 165 new financial centers by 2026-end. This new wave of expansion follows the branch network growth plans announced by Bank of America in June 2023. The plan focused on entering nine new markets, including Omaha, Boise and Milwaukee.The bank's strategic investment in new financial centers and push into new markets reflect a broader industry shift toward optimizing branch networks to deepen customer relationships and tap into new business opportunities. In this competitive environment, the ability to blend digital convenience with in-person expertise is expected to give Bank of America long-term leverage in the evolving banking landscape.BAC’s consumer mobile banking app now serves more than 48 million active users, and roughly 23 million consumers use Zelle, which has become a dominant way to move money. Digital Adoption Image Source: Bank of America Corp.Almost 87% of BAC’s global banking clients are digitally active, and the company’s CashPro platform uses artificial intelligence (AI) to streamline service requests. BAC plans to continue strengthening its technology initiatives and spend heavily on these. These efforts help it attract and retain customers and boost cross-selling opportunities. Fortress Balance Sheet & Solid Liquidity: Bank of America’s liquidity profile remains solid. As of Dec. 31, 2024, average global liquidity sources were $953 billion. Also, the company’s investment-grade long-term credit ratings of A1, A- and AA- from Moody’s, S&P Global Ratings and Fitch Ratings, respectively, and a stable outlook allow easy access to the debt market.BAC continues to reward shareholders handsomely. After it cleared the 2024 stress test, the company increased its quarterly dividend by 8% to 26 cents per share. In the last five years, it hiked dividends four times, with an annualized growth rate of 8.72%. Currently, the company's payout ratio is 32% of earnings.In July 2024, the company authorized a $25 billion stock repurchase program, effective Aug. 1. As of Dec. 31, 2024, almost $18.9 worth of buyback authorization remained available.Bullish Analyst Sentiments for BAC Shares in 2025Over the past month, the Zacks Consensus Estimate for earnings of $3.67 per share for 2025 remained unchanged, while it was revised 3.4% upward to $4.29 per share for 2026.Estimate Revision Trend Image Source: Zacks Investment ResearchThese upward adjustments reflect a positive sentiment among analysts and suggest encouraging prospects. Earnings Estimates Image Source: Zacks Investment ResearchFind the latest EPS estimates and surprises on Zacks Earnings Calendar.To Buy or Not to Buy Bank of America Stock NowBank of America shares performed well in January. The stock gained 5.3%, outperforming the S&P 500 Index rally of 2.7%. Further, in the past six months, the stock has soared 26.3%, well above the S&P 500 Index and the Zacks Finance sector. On the other hand, the stock lagged its industry peers — Citigroup C and JPMorgan JPM.Six Month Stock Price Performance Image Source: Zacks Investment ResearchBank of America stock is currently trading at a 12-month trailing price-to-tangible book (P/TB) of 1.79X. This is below the industry’s 2.89X. This shows the stock is inexpensive currently.Price-to-Tangible Book Ratio (TTM) Image Source: Zacks Investment ResearchBAC stock is inexpensive compared with JPM, which has a P/TB of 2.92X. On the other hand, it is trading at a premium C’s P/TB of 0.94X.Bank of America's global presence, diversified revenue streams, ongoing branch openings relatively high rates for long and technological innovations aimed at attracting and retaining customers provide a strong foundation for organic growth. Though the company faces near-term challenges, such as increased regulatory capital requirements under the Basel III framework and macroeconomic uncertainty because of the imposition of tariffs, its attractive valuation makes the stock a compelling option for investors.Given the company's solid fundamentals and favorable estimate revisions, investors should consider investing in Bank of America at its current price levels for potential gains going forward.Currently, Bank of America holds a Zacks Rank of 2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.Only $1 to See All Zacks' Buys and SellsWe're not kidding.Several years ago, we shocked our members by offering them 30-day access to all our picks for the total sum of only $1. No obligation to spend another cent.Thousands have taken advantage of this opportunity. Thousands did not - they thought there must be a catch. Yes, we do have a reason. We want you to get acquainted with our portfolio services like Surprise Trader, Stocks Under $10, Technology Innovators,and more, that closed 228 positions with double- and triple-digit gains in 2023 alone.See Stocks Now >>Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report Bank of America Corporation (BAC): Free Stock Analysis Report JPMorgan Chase & Co. (JPM): Free Stock Analysis Report Citigroup Inc. (C): Free Stock Analysis ReportTo read this article on Zacks.com click here.Zacks Investment ResearchWeiter zum vollständigen Artikel bei Zacks Weiter zum vollständigen Artikel bei Zacks