On Monday, CFRA upgraded Bank of America (NYSE:BAC) to a "Buy" rating from its previous "Hold" status, while also raising the price target to $53.00 from the former $44.00. The firm increased its 12-month target by $9, applying a wider risk premium and a forward normalized price-to-earnings (P/E) ratio of 14.4x, which is below the three-year average of 15.5x.
The upgrade comes with an upward revision of earnings per share (EPS) estimates for the financial giant. For 2024, the EPS estimate has been raised by $0.02 to $3.25, slightly above the consensus of $3.24. The 2025 EPS forecast sees a more significant increase of $0.15 to $3.75, compared to the consensus of $3.60. These adjustments are based on revenue projections of $102.0 billion for 2024 and $107.8 billion for 2025.
CFRA's positive outlook is driven by expectations of strong net interest income (NII) and non-interest income, particularly from areas like investment banking. The firm anticipates that Bank of America, which derives just under 60% of its total net income from NII, will see growth in this area due to a robust U.S. economy, solid loan volume growth, and lower rates. This forecast counters the expectation of material declines in NII.
The analyst points to the potential return of pro-business policies under the Trump administration as a catalyst for increased capital markets and investment banking activity, which is projected to rise in 2025. Bank of America is noted for ranking third in global investment banking fees for the first nine months of 2024.
Lastly, CFRA suggests that higher credit-loan losses from borrowers are unlikely, and they anticipate the return of capital to shareholders through common share repurchases and higher dividends for Bank of America.
In other recent news, Bank of America (BofA) has seen an upgrade from Citi from Neutral to Buy, with an increased price target to $54 from $46, reflecting potential returns above 15%. This upgrade is based on the valuation gap between BofA and its peer, JPMorgan Chase (NYSE:JPM), and the anticipation of tailwinds for BofA's net interest income. BofA is also considering litigation in discussions with the Consumer Financial Protection Bureau regarding transaction processing through the Zelle payment network. In addition, the bank has announced an industry-leading initiative to extend its guaranteed foreign exchange rates to up to one year.
Warren Buffett's Berkshire Hathaway (NYSE:BRKa) has significantly trimmed its stakes in BofA and Apple (NASDAQ:AAPL), boosting its cash reserves to a record $325.2 billion. The company reported a 6% decline in quarterly operating profit, primarily due to losses in insurance underwriting and the impact of a stronger U.S. dollar.
As the U.S. presidential election approaches, analysts predict potential market impacts based on the election results, influencing sectors ranging from banks and crypto to energy and healthcare.
InvestingPro Insights
Bank of America's recent upgrade by CFRA is further supported by real-time data from InvestingPro. The bank's market capitalization stands at an impressive $365.38 billion, reflecting its significant position in the financial sector. This aligns with the InvestingPro Tip highlighting BAC as a "prominent player in the Banks industry."
The company's P/E ratio of 17.18, when compared to its adjusted P/E ratio of 14.57 for the last twelve months, suggests that the stock may be reasonably valued, especially considering CFRA's target P/E of 14.4x. This valuation perspective is complemented by another InvestingPro Tip indicating that BAC is "trading near its 52-week high," with the current price at 99.85% of its 52-week peak.
In line with CFRA's positive outlook on Bank of America's dividend prospects, InvestingPro data reveals a dividend yield of 2.21% and a notable dividend growth of 8.33% over the last twelve months. An InvestingPro Tip further emphasizes this point, stating that BAC "has raised its dividend for 11 consecutive years" and "has maintained dividend payments for 54 consecutive years," underscoring the bank's commitment to shareholder returns.
For investors seeking more comprehensive insights, InvestingPro offers 8 additional tips on Bank of America, providing a deeper analysis of the company's financial health and market position.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.