Will Bank of America See Shares Lift?
Repayment of TARP and improvement of capital levels should help.
Bank of America (BAC) is trading strong today after Credit Suisse upgraded the company this morning. The firm raised its rating from Neutral to Outperform and raised its price target to $21 from $17.
The firm also raised Bank of America's 2010 EPS to $0.90 from $0.80. Credit Suisse expects the bank will boost earnings thanks to $3.6 billion in annual cost savings following its recent capital raise and TARP repayment.
However, it's not as rosy for fourth quarter '09, as Credit Suisse sees BAC losing $0.55 per share because of the redemption of TARP. For full-year 2009, Credit Suisse now expects Bank of America to report a loss $0.04 per share from a gain of $0.45. Even though paying back TARP is negatively impacting fourth-quarter '09 and full-year 2009 earnings, Credit Suisse sees the repayment as a positive since Bank of America was one of the only companies to receive "extraordinary assistance" from the government.
From a valuation standpoint, Credit Suisse believes that BoA shares are the cheapest out of large-cap banks such as Citigroup (C), Wells Fargo (WFC), and JPMorgan (JPM). According to Credit Suisse's estimates, Bank of America trades at 6.1 times 2010 earnings, compared to its peers at 7.6. Furthermore, Credit Suisse is forecasting a 7% growth in book value to $22.85 and 15% growth in tangible book value $13.75 for 2010. This would value the company at 0.8 times book value and 1.3 times tangible book value.
One thing I found interesting about the report was that Credit Suisse made no mention of BoA's troubles finding a CEO or the one it finally picked, Brian Moynihan, who some believed wasn't ready for the job. That being said, from an investment standpoint, the repayment of TARP and the improvement of capital levels should help lift the shares. I've owned the stock since early June and plan on holding on for quite some time.
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