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Bank of America, Morgan Stanley: Financial Winners

NEW YORK ( TheStreet) -- Bank of America (BAC - Get Report) and Morgan Stanley (MS - Get Report) were the winners among the largest U.S. financial names on Friday, with shares of both companies rising over 5%.

Bank of America's shares closed at $8.80, while Morgan Stanley closed at $17.08.

The broad indexes ended with slight gains, after the U.S. Bureau of Labor Statistics announced that 96,000 jobs were added to the U.S. work force in August, while the unemployment rate declined to 8.1% fro 8.3%, mainly because of a lower labor force participation rate.

The official employment numbers were a disappointment, after ADP reported on Thursday that nonfarm private employers added 201,000 full-time employees during August, increasing from an upwardly revised 173,000 in July.

The KBW Bank Index (I:BKX) rose 2% to close at 49.27, with all but two of the 24 index components ending the week with gains.

Bank of America's shares have now returned 59% year-to-date, following a 58% decline during 2011.

The shares trade for 0.7 times their reported June 30 tangible book value of $13.22, and for ten times the consensus 2013 EPS estimate of 91 cents, among analysts polled by Thomson Reuters. The consensus 2012 EPS estimate is 55 cents.

JPMorgan analyst Vivek Juneja on Thursday said that Bank of America and SunTrust (STI) should see a "sizeable earnings benefit" from rising home prices, since the companies have continued to see elevated expenses from nonperforming loans and repossessed real estate "at the high end at 138% and 95% of 2Q12 EPS, respectively," and that a "5-20% further reduction in residential mortgage related [loan losses] and [repossessed real estate] expenses above expectations could add 3-7% to 2013 EPS for Bank of America and SunTrust."

Juneja reiterated his "Overweight" rating for Bank of America, with a price target of $11.50, while upgrading SunTrust to "Overweight" from "Equal Weight," saying that a "0% reduction in other credit related expenses could add 2-5% to '13 EPS," for both companies.

Credit management expenses are particularly high for Bank of America," he said, "with $2.5 bil of expenses led by its $1.2 tril servicing portfolio with 13.5% delinquency ratio," and "recovery in the housing market should reduce problem loans faster (and also staff)."

BAC Chart BAC data by YCharts

Interested in more on Bank of America? See TheStreet Ratings' report card for this stock.
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