Banking giant Bank of America (BAC) managed to report robust fourth-quarter numbers that smashed expectations out of the water. The strong numbers provided a lift to BAC stock, which has been dinged recently due broad market weakness. A month ago, the stock dropped all the way to below $23. Now, the stock is rebounding back towards $28.
The situation at BAC is ostensibly favorable. The bank posted record earnings for the quarter, benefiting from lower corporate tax rates. BAC also managed to cut its noninterest expenses, building up a more efficient business that saw contributions from consumer banking, global banking, wealth and investment management, and the bank’s global markets segment. The encouraging earnings dispelled many of the fears that investors had about the financial sector coming into earnings season.
Oppenheimer analyst Chris Kotowski commented, “The beat mainly came from $300M higher net interest income (NII) and $390M higher trading revenues than we had expected. Despite average loan growth of just 0.7%, the NIM expanded by 9 bps Y/Y, NII grew by 6.4%. We think this definitively proves wrong the bears who fret endlessly about “rising deposit betas and slow loan growth…” A strong economy and rising rates are in fact good for banks.”
“We made only minor tweaks to our estimates and raised our PT to $34 from $31. After the Christmas sale in December, banks in general regained footing in January. Even though BAC has already bounced back to the level similar to post-3Q18 earnings, trading at 10x our 2019E EPS, we believe the stock is still attractive at both a relative and absolute level,” the analyst added.
All in all, Kotowski reiterates an Outperform rating on BAC stock, with a price target of $34, which implies an upside of 20% from current levels. (To watch Kotowski’s track record, click here)
Where does the rest of the Street side on this banking giant? It appears mostly bullish, as TipRanks analytics demonstrate BAC as a Buy. Out of 15 analysts polled in the last 3 months, 9 are bullish on BAC stock while 6 remain sidelined. With a return potential of nearly 12%, the stock’s consensus target price stands at $31.85. (See BAC’s price targets and analyst ratings on TipRanks)