The shares of Bank of America are trading higher after receiving a bullish recommendation from analysts at Baird and Bernstein equity research firms today. The analysts upgraded their rating on the bank’s stock to Outperform.
The stock price of Bank of America climbed 4.71% to $16.01 per share at the time of this writing around 12:46 in the afternoon in New York. The bank lost more than 9% in stock value over the past five days alone amid the global market selloff, which was primarily caused by the escalating investors’ concern regarding China’s weakening economic growth.
Bank of America offers adequate margin of safety
In a note to investors, Baird Equity Research analyst David A. George and his colleagues indicated that investors should take advantage on the market selloff to close their short positions and selectively acquire a stake in banks.
George and his fellow analysts disclosed that they started increasing their long position on Bank of America citing the reason that its discounted valuation offers an "adequate margin of safety and steady growth in tangible book value," which would push the stock price higher until the interest rate and growth outlook improves.
According to the analysts, Bank of America is a compelling tactical long position although its CORE NII will likely decline below the ~$10 billion quarterly run rate if the rates remain low, and its regulatory capital is slightly lower than peers.They also suggested that the bank will probably need to implement more aggressive cost-cutting next year to improve returns.
George and his fellow analysts emphasized that investors “should tolerate a more measured pace of capital return and steady book value accretion” given its ~1x tangible book value.
Bank of America is attractive after market selloff
On the other hand, Bernstein analyst John E. McDonald and Grant D’Avino believed that Bank of America is an attractive investment opportunity after the sell-off.
They explained that Bank of America’s stock price at $15.29 per share, the bank is trading at 9.6x their 2016 EPS estimates (1.60) and just below their $15.34tangible book value estimate for the third quarter of 2015.
“We believe the recent selloff has provided an attractive entry point for value-oriented investors with patience to wait for higher rates and cleaner signs of an improving U.S. economy,” wrote McDonald and D’Avino in a note to investors.