Can shares of Bank of America Corporation (BAC) really yield 20%? Mark DeVaul, a portfolio manager at the London Company, told Barron’s that Bank of America has a number of long-term positives, including “an unusually low valuation.”
While acknowledging that “things might look difficult in the near term” for the bank, DeVaul, whose company owns a significant stake in BAC shares, believes Bank of America’s “massive” $1.2 trillion deposit base gives it not only a competitive advantage relative to its peers, but also “a cheap way to raise capital.” (See also: Bank of America to Cut 8,000 Jobs.)
DeVaul, who cited waning macro-economic concerns, thinks Bank of America shares can deliver 20% gains and perhaps more. Bank of America stock rose as much as 3.35% Monday, reaching a session high of $13.85. And the stock’s rise rode the wave of a combination of positive factors, including the upcoming British referendum (“Brexit”) on the country’s membership in the European Union, where a poll pointed to “remain” vote.
What’s more, the analyst noted the bank’s attractive valuation, where the stock trades at about 0.8 times to tangible book value. “BofA trades at a larger-than-usual discount to JPMorgan Chase & Co. (JPM) and Wells Fargo & Company (WFC).” Adding, “In the past 10 years, BofA has traded for an average of 1.2 times tangible book.”
While DeVaul’s 20% projected rise in BAC shares might appear aggressive, it assumes a climb to $16.30 per share from current levels. This compares to analysts’ consensus 12-month price target of $17, which implies additional premiums of around 25%. But it will take more than a compelling argument to send the shares higher. America Corporation must figure out ways to grow revenue in this low interest rate environment.
For the quarter ending June, Bank of America is expected to deliver earnings of 37 cents per share, down from 45 cents a year ago, on revenue of $20.95 billion, down 6.2% year over year. For the full year, ending December, earnings are expected to decline 4.3% year over year to $1.32 per share, while revenue of $83.46 billion would mark a decline of 0.9% from the year-ago quarter. (See also: Bank of America Q1 Profit Falls 13% on Weak Trading.)
The Bottom Line
BAC stock closed Monday at $13.54, up 1.04%. The shares have declined 19.55% year-to-date, compared with a 1.92% rise in the S&P 500 (SPX) index. Over the past twelve months, the shares have declined 21.14%, while the S&P 500 index has declined 1.27%. BAC stock has a consensus buy rating and an average analyst 12-month price target of $17, implying a rise of 25% from current levels.
Originally Posted at Investopedia: Bank of America Stock Seen Climbing 20% (BAC)