Background
This is the fourth article in a 4 part series on the U.S. diversified banking sector. In the first article, I set the scene by reviewing the key banking sector metrics. The second article valued JPMorgan (JPM), the third article valued Wells Fargo (WFC), and in this article, I am going to develop an intrinsic value for Bank of America (BAC).
Intrinsic Value Approach
I will use a free cash flow to equity (FCFE) approach to value the equity in the bank where I assume that the excess cash is eventually returned to shareholders in the form of dividends. I will use a 3-stage model with high and constant growth in the first stage, followed by declining growth in the second stage and finally a mature, constant growth in the terminal stage.
