Bank Of America's Recovery Play: Credit Suisse Upgraded To Buy

Bank of America Merrill Lynch upgraded shares of Credit Suisse Group AG (ADR) CS from Neutral to a Buy rating, citing its recovery path. The firm boosted the price objective from CHF 13 to CHF 16 on the stock to reflect 14 percent earnings increase.

Rating Justification

“With a business still being turned around, continued exposure to FICC revenue streams (especially in the US), then we think CS fits this profile well. The CS story is still afflicted by a struggling Markets division but a turnaround from better revenues (easy comps to 1H17 in FICC) and costs (investor day on 7th December) could help push the stock up from its current 8.8x ‘18e EPS valuation,” analysts Andrew Stimpson and Michael Helsby said in a research note to clients.

The brokerage pointed out four key strategies from the elections results like increased interest rates, infrastructure spending, the strong U.S. dollar and cuts in tax rates. As far as the European Union is concerned, the firm thinks current conditions point to a recovery.

The lead analyst thinks the worst is over for Credit Suisse, and the company is well-positioned to deliver strong revenue growth for 2017. The turnaround in growth expectations from the American region would be a positive for the investment banking sector. For the overall performance, investor confidence on investment banking is a key factor.

An Opposing Voice

The latest Bank of America rating is the opposite of another brokerage’s action from about 10 days back. Macquarie downgraded the stock from Outperform to a Neutral rating on November 4.

At last check, the stock gained 3.38 percent to $14.70.