Market Overview

Bank Of America Upgraded En Masse On Wall Street

Bank Of America Upgraded En Masse On Wall Street
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Shares of Bank of America Corp (NYSE: BAC) rebounded on Tuesday morning by more than 5 percent after Wall Street analyst upgraded the stock en masse.

The stock traded recently at $16.04, up 4.9 percent on the day.

Bernstein: Sell-Off Provides ‘More Attractive' Entry Point

John McDonald of Bernstein commented in a note that the recent sell-off in Bank of America has created a "more favorable" risk to reward profile and "more attractive" entry point.

McDonald continued that at $15.29, shares are trading at 9.6x his 2016 earnings per share estimate of $1.60 and just below his third-quarter tangible book value estimate of $15.34. As such, the sell-off is attractive for value-oriented investors with the patience to wait for higher rates and clearer signs of an improving economy. In the meantime, the company has levers it can pull (including additional cost saving initiatives) while the U.S. economy (and credit quality backdrop) are still "solid."

Shares were upgraded to Outperform from Market Perform with an unchanged $19 price target.

Related Link: Banks Go From 'Euphoria To Panic In A Week,' But BofA And SunTrust Might Be Rebound Plays

Baird: ‘Compelling Tactical Long Idea'

David George of Baird commented in a note that Bank of America's discounted valuation (<1x 2015E TBV) provides investors with an "adequate margin of safety" while "steady" growth in its tangible book value should help move the stock higher until the interest rate and growth outlook improves.

George said Bank of America's Core NII will "likely" dip below the approximate $10 billion quarterly run rate if interest rates stay low, and the company will need to implement "more aggressive" cost cutting initiatives in 2016 to improve returns.

George also noted that Bank of America's regulatory capital is slightly below its peers (advanced CET1 9.3 percent on pro forma basis) while investors should "tolerate" a more measured pace of capital return and steady book value accretion.

Finally, the analyst stated that $18 per share is a "reasonable" valuation in 12-18 months if not sooner with more macro help.

Shares were upgraded to Overweight from Neutral with an unchanged $18 price target.

KBW: Buy On The Pullback

Christopher Mutascio of KBW commented in a note that while it is not clear how long the stock market "carnage" will last, what is clear is that the negative sentiment over bank stocks "is not all negative."

Mutascio said many market participants have been buying bank stocks "simply because rates are rising" and now these investors leaving the stock could prove to be a "good thing" for value investors as the stock can now better align its valuation versus actual fundamental performance.

Mutascio noted that he would "prefer" buying Bank of America's stock at $16.10 with a "more realistic view on interest rates" versus buying the stock a month ago at $18.45 when sentiment was "overly optimistic."

Finally, the analyst pointed that he has been "patiently waiting" for a pullback in the "lofty valuations" before becoming aggressive.

Shares were upgraded to Outperform from Market Perform with an unchanged $20 price target.

Macquarie: Valuation Attractive

David Konrad of Macquarie Research commented in a note that Bank of America's valuation no longer implies "outsized" benefits from higher rates.

Konrad stated that his view that a potential flattening curve may limit the company's benefit from higher rates which would cause a "drag" on consensus estimates on valuations. However, his bearish views are now changed given the stock's "more reasonable" 11.0x multiple on earnings per share of $1.40 (ex/rates) in 2016.

Konrad also noted that a forward Y/E TBV of $15.40 could support the stock for three reasons: 1) Management has the ability to cut expenses out of the consumer segment, 2) the company has the lowest international exposure compared to its peers, and 3) the company also has the lowest exposure compared to its peers.

Finally, the analyst stated that Bank of America's third quarter will "likely be ugly" with the 10-year rate retreating from 2.36 percent last quarter to nearly 2.00 percent currently. As such, the analyst lowered this third quarter earnings per share estimate to $0.30 from a previous $0.33 per share, which is actually 16 percent below consensus estimates.

Nevertheless, Konrad concluded that the risk to reward profile is now "more positive" as "enthusiasm" for the interest rate benefit is "largely out of its valuation."

Shares remain Neutral rated with an unchanged $16 price target.

Latest Ratings for BAC

Oct 2016Compass PointInitiates Coverage OnNeutral
Oct 2016JefferiesMaintainsBuy
Sep 2016CLSAMaintainsOutperform

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