Bank of America (BAC) has been a consistent outperformer over the past two years as its shares almost tripled during the period. After years of dealing with legacy mortgage problems and poor operational management, the bank started to deliver strong results as of 2015 year-end and the stock has gone up tremendously ever since. For FY 2017, the bank reported a ROAA of 93 bps (excluding the impact of the Tax Reform that took the actual figure down to 80 bps) which was only 7 bps lower than the long-term target of 1%. We believe that likelihood of this target being achieve in the following two-year period is very high as we expect strong earnings are set to continue. However, we think that bullish expectations are already baked in the stock, and we drop our rating to Hold removing Bank of America from our top convictions list in the banking space.
