Analyst Raises Bank Of America's Price Target To $40, Yet Sees Higher Returns In Other US FIG Stocks

BMO Capital Markets analyst James Fotheringham reiterated the Market Perform rating on Bank Of America Corporation (NYSE:BAC), raising the price target to $40 from $39.

The analyst sees more reliable return potential from other U.S. FIG stocks based on greater investment opportunities among payment stocks and alternative asset managers, which will likely benefit from less exposure to funding, regulatory, and credit risks.

Following BAC's 3Q23 revenue and credit beat, the analyst raised estimates by as much as +3% (higher NII).

BAC expects quarterly NII to trough in 1H24, growing modestly in 2H24; this implies 2024 NII of $56-56.5 billion (2-3% above consensus), the analyst notes.

BAC reiterated prior 4Q23 guidance for NII ($14.6 billion) and operating expenses ($15.6 billion). 

According to the analyst, unchanged guidance implies NII down -4% QoQ (due to higher deposit beta, continued deposit run-off, slower loan growth, and trading NII headwinds) and costs down -2% QoQ (due to lower headcount).

BAC expects quarterly NII to trough at $14.0 billion in 1H24, growing modestly in 2H24 to less than $14.5 billion (low-single-digit% annual growth), assuming the forward curve materializes in tandem with modest growth in loans and deposits. 

Implied 2024 NII ($56-56.5 billion) is 2-3% above current consensus, the analyst adds.

Fotheringham raised BAC core EPS estimates by +2% in 2023 (to $3.51 from $3.46), +3% in 2024 (to $3.49 from $3.40), and +3% in 2025 (to $3.67 from $3.57), higher-than-previously modeled NII more than offsets lower expected fees. 

Price Action: BAC shares are trading lower by 0.31% to $27.53 on the last check Wednesday.