Lower Than Expected Interest Rates Are Digging Into This Big Bank's Profits

Having lost more than 20 percent year-to-date, Bank of America Corp BAC shares already seem to discount the bad news. Credit Suisse’s Susan Roth Katzk maintained an Outperform rating for the company, with a price target of $18. She said that long-term interest rates were at lower levels than earlier anticipated.

Reducing Estimates

“[W]ith the yield on the 10-year at 1.89% as of March 29th, a 38 basis point decline quarter-to-quarter, the estimated FAS 91 adjustment for the quarter increases, from $500mn to $1.1bn,” analyst Susan Roth wrote.

The estimate for 1Q16 has been reduced from $0.23 per share to $0.18 per share to reflect the FAS 91 charge. The full year 2016 estimate has been reduced from $1.35 per share to $1.30 per share, assuming no incremental offset.

Thesis On The Stock

“Best we can tell, at current prices, the stock is already within reach of discounting a mild recession,” Katzk commented. Organic revenue growth, expense initiatives and evidence of effective risk management would be critical for sustained share price outperformance. “The increased share repurchase authorization enhances our conviction,” the analyst added.