Bank of America's NII Bottoming Signals a Turnaround: Why Investors Should Buy Ahead of Earnings

Bank of America (NYSE:BAC) stands at a critical inflection point. With its Q2 2025 earnings report due on July 16, investors are bracing for confirmation that net interest income (NII) has bottomed—a key milestone signaling a cyclical recovery for the bank. Pair this with undervalued metrics, dividend growth, and a fortress balance sheet, and the case for BAC as a compelling long-term play becomes compelling.

The NII Bottoming: A Catalyst for Multi-Year Growth

Bank of America's management has consistently guided that NII would bottom in Q2 2025 before rebounding. This expectation hinges on the Federal Reserve's projected rate cuts in late 2024, which are expected to reduce deposit costs and ease loan pricing pressures.

In Q1 2025, NII reached $14.6 billion, a 3% year-over-year increase, driven by deposit favorability and fixed-rate asset repricing. The company now projects NII to grow 6-7% for the full year, with Q4 2025 NII expected to hit $15.5–15.7 billion. The key takeaway: the worst of NII contraction is over, and the path forward is upward.

Valuation: A Discounted Opportunity in a Premium Sector

Despite its strong fundamentals, BAC trades at a Price-to-Book (P/B) ratio of 1.34, modestly above the industry median of 0.9 but significantly below peers like JPMorgan Chase (P/B of 1.45). This discount reflects lingering investor skepticism about macroeconomic risks and regulatory headwinds.

Key Metrics:
- P/B Ratio: 1.34 vs. JPM's 1.45 and the industry median of 0.9.
- P/E Ratio: 13.5x, slightly below its peer average of 13.6x.
- DCF Fair Value: Analysts estimate BAC's intrinsic value at $65.24, implying a 27.7% upside from its current price of ~$47.

Investors are effectively getting a major U.S. bank at a discount, with room for valuation expansion as NII recovers and macro fears subside.

Dividend Growth: A Margin of Safety in Volatile Markets

Bank of America's dividend yield, now at 3.8% post-Q2 hike, offers a critical buffer against market volatility. The bank's CET1 ratio of 11.8% and $273.6 billion in cash provide ample capital to sustain dividends even in a downturn.

The Pipeline:
- The dividend was raised 8% to $0.28/share in July 2025, following Fed stress test approval.
- A low payout ratio of 30% (vs. a projected peak of 47.8% by 2028) leaves room for further hikes.
- By 2028, BAC could offer a 6.4% dividend yield, making it a top-tier income play in a low-bond-yield world.

Risks: Navigating Regulatory and Macroeconomic Crosscurrents

No investment is risk-free. Key concerns include:
1. Regulatory Overhang: Proposed Basel III rules could pressure capital ratios, though BAC's 11.8% CET1 ratio provides a 1.6% buffer over minimum requirements.
2. Loan Demand Slump: A slowdown in commercial lending could crimp NII growth.
3. Interest Rate Volatility: If the Fed delays rate cuts, deposit costs may not decline as expected.

Why the Risks Are Manageable:
- BAC's conservative provisioning and diversified revenue streams (e.g., wealth management) mitigate loan risk.
- The bank's $375 billion asset base and fortress liquidity ($1 trillion) ensure resilience.

Investment Thesis: Buy the Dip Ahead of Earnings

With NII set to bottom and valuation metrics screaming undervaluation, BAC presents a reward-to-risk asymmetry rarely seen in blue-chip banks.

Target Price & Catalysts:
- Short-Term: A Q2 NII beat could push shares toward the $50–$52 consensus target.
- Long-Term: The $65.24 DCF estimate suggests a multi-year compounding opportunity.

Actionable Strategy:
- Buy Now: Enter a position at ~$47, with a stop-loss below $42 (the 2024 low).
- Hold for the Cycle: NII recovery and dividend growth are multi-year trends.

Conclusion: A Turnaround Tale with Legs

Bank of America's NII bottoming is not just a technical milestone—it's a strategic inflection point. With a discounted valuation, dividend growth, and a balance sheet that can weather macro storms, BAC offers a rare blend of safety and upside. Investors ignoring the stock ahead of earnings risk missing a generational opportunity.

Joe's Bottom Line: Buy BAC now. The math says $65 is achievable, and the risks are priced in. This is a stock to own for the next three years.