Bank of America Earnings: Looking Through Market Malaise, We See Opportunity

Key Morningstar Metrics for Bank of America

• Fair Value Estimate: $58.00
• Morningstar Rating: ★★★
• Morningstar Economic Moat Rating: Wide
• Morningstar Uncertainty Rating: Medium

What We Thought of Bank of America’s Earnings

Bank of America BAC reported fourth-quarter 2025 earnings, with shares falling nearly 5% in Jan. 14 trading despite modest sales and earnings outperformance relative to FactSet consensus estimates.

Why it matters: We view the market’s reaction as reflexive and somewhat short-sighted, with shares appearing to sell off in response to expense guidance for 2026, and perhaps relative weakness in investment banking and global markets.

• As we see it, investors should pay more attention to the firm’s expectation that it will generate 200 basis points of operating leverage in the year to come (that is, increase revenue by 2 percentage points more than expenses increase) and should continue to benefit from net interest income growth tailwinds that competitors do not as ill-timed securities investments from 2020-21 reprice at higher yields.
• Married with our more optimistic outlook for capital markets returns in 2026-27, which drives better performance in non-interest revenue lines like wealth and investment management, institutional trading, and investment banking, we see a viable route to achieving the firm’s investor day targets for a 55%-59% efficiency ratio (lower is better).

The bottom line: With those changes and a few model housekeeping adjustments—like lowering our through-the-cycle net charge-off expectations—in line with management guidance, we meaningfully raise our fair value estimate for wide-moat Bank of America to $58 per share from $51.

• Most of the change can be attributed to stronger expected growth in fee income lines—to a compound annual growth rate of 4.4% in 2026-30 from 3.9% prior—and to giving the firm more credit for the strides it has made toward achieving its efficiency ratio targets.
• To this effect, driven by our forecast 6.4% compound annual growth in net interest income between 2026-30, we now expect the firm’s efficiency ratio to equilibrate around 57% from 58%.