Make Bank Of America Great Again; Analyst Prefers This Stock Into Year End

Bank of America Corp BAC on Friday reported third-quarter earnings, which initially sent shares lower. However, the company's earnings were very much "solid" and investors aren't appreciating the stock's attractive valuation, Buckingham Research Group's James Mitchell commented in a report.

Bank of America's reported earnings of 48 cents per share, which was a penny better than what the analyst was expecting and 2 cents better than what the Street was expecting. Revenue was "slightly higher" than expected, NII was $100 million better than expected and reflected a two basis point improvement in the NIM despite an acceleration of deposit pricing.

Mitchell maintains a Buy rating on Bank of America's stock with an unchanged $30 price target, noting investors should "prefer this stock into year end."

By segment, investment banking activity was $200 million above expectations which more than offset a $10 million loss in mortgage banking, the analyst said. Consumer banking growth was also "solid" given an 8 percent loan growth and a 9 percent growth in deposits. On the other hand, the company wide NCO ratio fell from 40 basis points in the second quarter to 39 basis points and may indicate the company is seeing "stable credit loss trends."

Nevertheless, the bank's stock is trading only 11.1x the analyst's 2018 EPS estimate which implies investors aren't "fully appreciating its above average asset sensitivity via a material mix shift in deposits and potentially lower deposit betas this cycle."

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