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Morgan Stanley Reveals 'Hidden Gem' For Bank Of America

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In a report published Monday, Morgan Stanley analysts maintained an Overweight rating on Bank of America Corp (NYSE: BAC), with a price target of $20.

The company's stock is trading at a discount of 25 percent to its sum of the parts. The analysts cite the reasons as most investors being "focused on rates" and "waiting for more clarity on when they will rise, particularly as BAC is among the most sensitive."

The company's stock is also experiencing an overhang from regulation. "Pending exit from parallel run and the possibility of the Fed adding the GSIB buffer to CCAR drive some uncertainty on forward capital return," the analysts added.

In the report Morgan Stanley noted, "Looking at BAC's $15.72 current share price another way, implies you can buy the entire company for just the value of its consumer bank and IB franchise. A sum of the parts using a regional bank multiple for the consumer/other business and GS multiple for the IB/trading business implies a $15.70 value (this SOTP is calculated using current prices. An SOTP based on target prices would be even higher)."

These calculations suggest that one can buy Bank of America's wealth management division for free. The company's Global Wealth & Investment Management (GWIM) division includes the Merrill Lynch global WM platform, which accounts for 80 percent of its revenues, and the US Trust/BAC PWM business.

Over the past couple of years, Bank of America has generated the strongest AUM growth among its large cap bank peers. The growth translates to a 14 percent CAGR, as compared to the peer median of 11 percent. The Wealth Management segment has generated a robust revenue CAGR of 6 percent and 12 percent pre-provision operating profit (PPOP), over the past two years.

"We value the WM business at $4.84 a share…Buy today to get what we see as a hidden gem cheap," the report added.

Latest Ratings for BAC

Apr 2018CitigroupMaintainsNeutralNeutral
Apr 2018BarclaysMaintainsEqual-WeightEqual-Weight
Mar 2018Credit SuisseMaintainsOutperformOutperform

View More Analyst Ratings for BAC
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Posted-In: Morgan StanleyAnalyst Color Reiteration Analyst Ratings


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