BofA Securities upgrades UBS stock rating to Neutral on improved outlook

Investing.com - BofA Securities has upgraded UBS AG (SIX:UBSG) (NYSE:UBS) from Underperform to Neutral and raised its price target to CHF31.00 from CHF25.00, according to a research note released Tuesday. The upgrade comes as UBS shows strong momentum, with the stock delivering a 22.9% return year-to-date and trading near its 52-week high of $36.59.

The upgrade reflects BofA’s view that UBS now represents "a highly attractive proposition" following its recent developments, with the equity story combining "some relative headwinds with areas of strong growth." The firm expects UBS’s earnings per share to expand sequentially until 2028. As a prominent player in the Capital Markets industry, UBS has maintained dividend payments for 14 consecutive years, with a current dividend yield of 0.8%. InvestingPro analysis reveals 8 additional key insights about UBS’s market position and growth potential.

BofA Securities noted that capital headwinds for UBS have now been revealed and buyback expectations have been reset downward. The bank has been among the worst-performing compared to European bank peers year-to-date.

The research firm believes risks are now adequately reflected in UBS’s share price, which it expects will remain range-bound, at least until the fourth quarter of 2025 when new targets are set to be presented.

For UBS ADRs trading on the NYSE, BofA Securities raised its price objective to USD38.7 from USD30.5, based on updated earnings per share estimates.

In other recent news, UBS Group AG is navigating significant regulatory and financial changes. The Swiss Federal Council’s new capital requirements could necessitate an additional $42 billion in Common Equity Tier 1 (CET1) capital, partly due to the acquisition of Credit Suisse. Despite these challenges, UBS plans to maintain its financial targets, including a return on CET1 capital of around 15% and a cost/income ratio below 70% by 2026. The bank also intends to increase its ordinary dividend per share by approximately 10% and repurchase up to $3 billion in shares by 2025, contingent on maintaining a CET1 capital ratio of around 14%.

In analyst updates, Morgan Stanley (NYSE:MS) downgraded UBS from Equalweight to Underweight, citing capital concerns and reducing the price target to CHF26.00. RBC Capital also lowered its price target for UBS to CHF29.00, maintaining an Outperform rating, and highlighted potential regulatory impacts. Meanwhile, Citi analysts upheld a Neutral rating on UBS, noting the extended transition period for new capital requirements as a mitigating factor. Additionally, UBS has expressed disagreement with the Swiss Federal Council’s capital proposals, arguing they are disproportionately high and intends to engage in the consultation process to seek adjustments.

In other developments, Elon Musk’s xAI Corp. has added Barclays (LON:BARC) Plc, Mitsubishi UFJ (NYSE:MUFG) Financial Group Inc., and UBS Group AG to its recent $5 billion debt deal. These banks were included to strengthen relationships that may assist with future funding needs.

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