Bank of America Corp (NYSE:BAC) issued disappointing financials for the first quarter of 2013 on April 17th. Earnings per share came in at 20 cents, which missed analyst expectations of 22 cents. While this was an increase in percentage terms, it still left the bank in a questionable value situation- annualizing the 20 cent per share figure gives a P/E multiple of 14, well above that of many large banks- and Bank of America Corp (NYSE:BAC) reported a decline in revenue compared to the first quarter of 2012 as well.
The bank has been an arguable value play for some time, with the case largely resting on the fact that the stock trades at a large discount to the book value of its equity; currently, the P/B ratio is 0.6. In theory, this would limit Bank of America Corp (NYSE:BAC)’s downside- the stock should not fall too far below book value- and over time the market cap should rise (or book values be written down, or some combination of the two). Wall Street analysts had also been forecasting significant improvements on the bottom line over the next couple years as Bank of America Corp (NYSE:BAC) cut costs, with the result being a forward price-to-earnings multiple of only 9.
Bank of America Corp (NYSE:BAC) had been one of the most popular financial stocks among hedge funds in the fourth quarter of 2012, though other large banks such as Citigroup Inc (NYSE:C) and JPMorgan Chase (NYSE:JPM) had at least as many hedge funds and other notable investors report a position (find more financial stocks that hedge funds loved). Billionaire Kerr Neilson’s Platinum Asset Management owned over 37 million shares at the end of December, making Bank of America Corp (NYSE:BAC) its largest holding by market value (check out Neilson’s favorite stocks). Adage Capital Management, managed by Phil Gross and Robert Atchinson, increased its stake by over 120% during Q4 to a total of almost 27 million shares (see Adage’s stock picks).
Citigroup Inc (NYSE:C) has a similar investment thesis to Bank of America, in that investors do not currently have much confidence in its balance sheet and so the P/B ratio is fairly low (that metric is 0.8 here). Citi reported somewhat strong numbers in the first quarter of 2013, with revenue up 10% and net income up 30% versus a year earlier. It trades at 9 times forward earnings estimates, though that figure is dependent on earnings per share being a good bit higher this year than in 2012. JPMorgan Chase combines a smaller discount to book value with the fact that it only needs to maintain its current business to prove undervalued, with a trailing P/E of 8; while revenue grew only slightly in its last quarterly report compared to the first quarter of 2012, it doesn’t need to improve by much and earnings were actually up.