Bank Of America Will Beat The Market, Says KBW Analyst

• • Following the recent 13 percent from its July 22 peak, Bank of America Corp. BAC is now at a low price to tangible book value, which offers the shares downside protection.
• • Keefe, Bruyette) & Woods’ Christopher Mutascio upgraded Bank of America Corp from Market Perform to Outperform, while maintaining the price target at $20.
• • While the upgrade is based on valuation, Mutascio recommends buying the shares keeping in mind interest rates and economic growth, and the effect of these two factors on the company’s earnings rather than buying when the shares were up a month ago on overly optimistic sentiment.

Mustascio believes that “the recent hit bank stocks have taken due to the “lower interest rates for longer” sentiment is not all negative,” given that there would now be a decline in “momentum investors” who were buying bank stock merely based on rising rates.
Getting rid of such investors could prove positive for value investors, Mustascio said, because it “better aligns valuations with actual fundamental performance.”
Bank of America’s shares have robust upside potential of about 26 percent, according to the Keefe, Bruyette & Woods report. “This represents the second-highest upside of the 20 large regional/universal banks KBW's coverage universe,” the report added.

On a year to date basis, the stock has decline 10 percent, representing the second-weakest performance among the 20 large regional/universal banks covered by Keefe, Bruyette & Woods. “The underperformance comes despite higher EPS estimates,” Mutascio stated.

However, Bank of America has limited exposure to the Chinese market, comprising less than one percent of the company’s balance sheet as of 2Q15.

The 2015, 2016 and 2017 EPS estimates for the company had been raised following the 2Q15 earnings results reported by Bank of America.