Morgan Stanley Positive on Bank of America Corp (BAC) Following New Accounting Policy

Morgan Stanley analyst Betsy Graseck provides insight on shares of Bank of America Corp (NYSE:BAC) after the banking giant has indicated its plans to change its accounting policy in regards to premium amortization on debt securities, allowing a longer period of time to pay off debt over the “contractual life” of the bond, instead of previously over the “estimated life.”

On back of the new policy method, Graseck sees every reason to remain bullish on the stock and reiterates an Overweight rating on BAC with a $17 price target, which represents a nearly 13% increase from where the stock is currently trading.

This revision will be effective by the third quarter of 2016, a change made under the FASB Accounting Standards Codification, and a restatement of earnings for past periods is expected when third-quarter earnings will be released October 17th.

Graseck asserts, “BAC’s new accounting policy will lower its earnings volatility. Result is positive; less stock tail-risk, more buybacks.”

Moreover, “This is something investors have been asking for. We believe this is positive for the stock as it 1) reduces volatility in NII and earnings; 2) makes BAC’s results more comparable with those of peers,” the analyst explains.

As Graseck views it, not only does the analyst count this as a favorable change, but contends, “We believe investors will view this positively, even though it’s a non-cash change.”

According to TipRanks, which measures analysts’ and bloggers’ success rate based on how their calls perform, four-star analyst Betsy Graseck is ranked #1,026 out of 4,183 analysts. Graseck has a 59% success rate and realizes 3.9% in her annual returns. When recommending BAC, Graseck yields 3.7% in average profits on the stock.

TipRanks analytics indicate BAC as a Strong Buy. Based on 23 analysts polled in the last 3 months, 18 rate a Buy on BAC, while 5 maintain a Hold. The 12-month price target stands at $17.79, marking a nearly 18% upside from where the shares last closed.


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