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On Monday, Morgan Stanley (NYSE:MS) analyst Betsy Graseck upgraded shares of Bank of America (NYSE:BAC) from Equalweight to Overweight, despite lowering the price target to $47.00 from $56.00. The upgrade reflects a valuation call as the stock is currently trading at only 8 times Morgan Stanley’s projected 2026 earnings per share (EPS) and 0.8 times its book value per share (BVPS), with an anticipated return on equity (ROE) of 11% by 2026. Current InvestingPro data shows BAC trading at 10.55x trailing earnings with a price-to-book ratio of 0.96x, while offering a 3.02% dividend yield. The stock has maintained dividend payments for 55 consecutive years, with 11 years of consecutive increases.
Bank of America has underperformed compared to its peers in the money center bank sector year-to-date, with the stock down 21.26% YTD and currently trading near its 52-week low of $33.67. Concerns have been raised that potential Federal Reserve rate cuts and a flattening yield curve might negatively impact the bank’s net interest margin (NIM) expansion. However, Morgan Stanley expects Bank of America to see NIM growth from 1.96% in 2024 to 2.08% in 2025, and further to 2.15% in 2026. InvestingPro analysis indicates the stock is in oversold territory, with additional insights available in the comprehensive Pro Research Report covering this $261.46 billion financial giant.
The anticipated NIM expansion is partly due to an expected $1.6 billion net interest income (NII) accretion from the cessation of the Bloomberg Short-Term Bank Yield Index (BSBY) from the fourth quarter of 2024 to the fourth quarter of 2026. Additionally, a $150 billion notional of 2.5% receive-fixed swap is projected to roll off in the second half of 2025. These benefits are expected to materialize regardless of whether the Fed decides to cut rates.
Morgan Stanley’s price target of $47.00 is based on a target 2026 price-to-earnings (PE) ratio of 11 times and implies a 1.1 times target 2026 price-to-book value per share (P/BVPS), against an 11% ROE. This price target suggests a 37% upside from the current levels, indicating a positive outlook for Bank of America stock according to Morgan Stanley’s analysis. Based on InvestingPro Fair Value calculations, the stock is currently trading near its fair value, with 12 additional ProTips and extensive financial metrics available for subscribers.
In other recent news, Bakkt Holdings, Inc. has faced a significant setback as its major partners, including Bank of America and Webull, have decided not to renew their agreements. This decision is expected to lead to a loss of approximately 74% of Bakkt’s revenue from cryptocurrency services, amounting to around $1.2 billion. Ningi Research, which has maintained a short position on Bakkt, predicts that the company may not file a 10-K report in the future. Additionally, Bank of America has made headlines with its decision to cut 150 junior banking positions in its investment bank division. The company plans to offer alternative roles to most affected employees, although some have opted to leave. Furthermore, Bank of America has reportedly let go of 16 bankers in Hong Kong as part of a broader global reduction in its investment banking workforce. Meanwhile, the Federal Deposit Insurance Corporation (FDIC) has issued new guidance for banks involved in crypto-related activities, allowing FDIC-supervised institutions to engage in permissible crypto activities without prior approval. This new guidance aims to clarify how banks can participate in crypto and blockchain-related activities while maintaining safety and soundness standards.
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