Bank of America Corp (BAC)’s P/E May Be the Cheapest in Entire S&P 500: Jim Cramer

Bank of America Corp (NYSE:BAC) reached a settlement with the U.S. Justice Department that it announced yesterday. According to the settlement terms Bank of America Corp (NYSE:BAC) would be shelling out more than $16 billion in penalties. This news was enough to drive the stock of any company lower, but not Bank of America Corp (NYSE:BAC). Its shares saw an unprecedented increase on Thursday, following the news of the settlement with the Justice Department. Jim Cramer explained why instead of going lower, Bank of America Corp (NYSE:BAC)’s shares soared on the news on CNBC, recently.

“How can a company write a $17 billion check to the Government and still have its stock go higher? That’s a legitimate question considering that Bank of America Corp (NYSE:BAC)’s stock is soaring. Now that the company has paid the Department of Justice its bounty of which more than $9 billion is cash on the barrel head. Enough to wipe out a quarter worth of earnings along with any reserves. The answer is simple, we are now about to estimate what Bank of America Corp (NYSE:BAC) can earn, we are now able to put a number out there that can be reached […],” Cramer said.

Cramer feels after the settlement, Bank of America Corp (NYSE:BAC) is now in the realm of ‘normalized earnings power’. According to Cramer, for the period that  Bank of America Corp (NYSE:BAC) was involved in litigation, it was hard for analysts and investors to figure out how much the company can earn, but now that the issues have been sorted one can estimate Bank of America Corp (NYSE:BAC)’s real earnings without accounting for costs like litigation expenses and penalties.

“[…] I think the answer is $2 per share in 2016, maybe even earlier if rates were to spike to 3% in the benchmark 10-year. That makes the price to earnings multiple or P/E multiple in this stock the cheapest in the banking group or you could argue, may be the cheapest in the entire S&P 500 […],” Cramer added.

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