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Story updated stock price and includes details on international growth and prime brokerage.
NEW YORK (
Bank of America(BAC - Get Report) shares jumped out of the gate on Tuesday as statements by Chief Executive Brian Moynihan implied the bank's shares trade at less than six times "normalized" earnings.
Speaking to investors in New York today, Moynihan said "normalized" earnings for Bank of America should be roughly $35 billion to $40 billion before taxes. Assuming a middle ground of $37.5 billion and a 35% tax rate, that translates to $24.38 billion in net income, or $2.43 for each of Bank of America's 10 billion shares outstanding, according to an analysis by Stifel, Nicolaus analyst Chris Mutascio.
That translates into less than one sixth of Monday's closing price of $14.03 for Bank of America shares.
The comments gave a lift to Bank of America's stock price. Shares finished the day on Tuesday up 4.70% to $14.69, ahead of rivals like
Citigroup(C - Get Report),
Wells Fargo(WFC - Get Report) and
JPMorgan Chase(JPM - Get Report), which were also higher.
Stifel analyst Mutascio noted in his report that $2.43 of normalized earnings is well ahead of his $2.14 normalized estimate for Bank of America. "We think it takes longer for the company to reach normalization than most other banks within our large cap bank coverage," he said in the note.
While most of Bank of America's businesses should be generating normalized earnings by 2013 or sooner, deposits and home loans will take longer, according to a slide show accompanying Moynihan's presentation.
Moynihan also said Bank of America, which has grown largely through acquisitions, will no longer be pursuing deals. Instead, it will focus on controlling expenses and returning capital to shareholders while trying to win market share in the U.S. and continue to grow around the globe. Despite major asset sales in Brazil and Mexico, Bank of America got 13% of its revenues from outside the U.S. in 2010, up from 7% in 2008, before it completed its acquisition of Merrill Lynch. The company will try to get 50% of its revenues internationally, according to a
CNBC report from the shareholder event.
CNBC also reported that Bank of America aims to be a top three prime broker. On Monday, the bank
announced it hired a new head of that business from
Bank of America will look to pay a modest dividend in 2011 and 2012, though Mutascio noted "it does not appear that Mr. Moynihan expects any material return of excess capital to shareholders until 2013-2014."