This Unconventional Metric Is Bank Or Investment Company Of America’s Key To Success –

Bank or investment company of America (NYSE: BAC) recently reported its first-quarter earnings, which trounced analyst anticipations. 0.66, the bank’s stock was immediately down a few percentage factors after the release (though they have rebounded around this writing). Furthermore, some experts actually downgraded the stock following the company’s record and meeting call. The culprit is the most common concern for the beaten-down banking sector — investors continue to worry we’re nearing the end of the existing economic development, with a more challenging interest-rate environment due to a set-yield curve.

Bank or investment company of America did face some pressure on margins in the first quarter, along with a challenging capital marketplaces and investment banking environment. In fact, the company’s income was slightly down year over year. And yet there’s much more to Bank or investment company of America’s story than the web interest margins it makes on loans. In fact, Bank or investment company of America management often highlights a different, non-standard metric in income presentations that is arguably a lot more important to traders. Though it isn’t a standard GAAP metric, operating leverage takes center stage at Bank of America.

Management defines working leverage as net revenue growth minus non-interest expense growth. That is important because the highlight of CEO Brian Moynihan’s strategy over the past few years has been one of tight cost cuts, coupled with technology investments to increase efficiency. Though Moynihan’s strategy also demands revenue and loan growth, those goals are more modest, at GDP (Gross Domestic Product) plus 1 to 2 2 percentage points. Growing too fast can be dangerous for a bank or investment company, and as one of the largest banks in the us, Moynihan responsibly is determined to develop.

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Impressively, the company’s efficiency ratio, which monitors non-interest expenditures as a share of revenue, fell from 60% to 57% year over year. Such a big decline is impressive for such a large bank hugely. While GDP-plus doesn’t sound particularly enticing to numerous, the concentrate on cost cuts and safe loan growth can make for surprisingly exciting earnings-per-share growth. It’s not often that you see a company grow EPS by 13% while its revenue is down, but that’s what’s taking place with Bank or investment company of America, because of Moynihan’s ruthless cost-cutting and the huge stock buyback program. Can the streak continue?

Bank or investment company of America’s traditional strategy isn’t garnering much love on Wall Street — the business trades at only 11.5 times trailing earnings and 9.5 times ahead profits. However, showy and thrilling growth quantities can result in danger in the bank industry possibly. But if Bank of America can continue to grow EPS by double digits — a rate higher than its current PE multiple — patient investors could be in for exciting returns.

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