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3 Banks Holding Q1 Earnings Surprises From Guggenheim

Stocks in this article: BAC WFC USB

NEW YORK ( TheStreet) -- Guggenheim Securities analyst Marty Mosby expects a very solid first quarter for large-cap U.S. banks.

The analyst expects the 16 large-cap banks covered by his firm "to exceed market expectations by 6% in 1Q12 and produce 4% sequential EPS growth," through accelerated mortgage refinancing, "a rebound in investment banking activities, and a favorable impact from improved market valuations on trust and investment fees," along with continued credit quality improvement.

Guggenheim on Wednesday upgraded Bank of America (BAC) to a "Buy" rating from a neutral rating, while maintaining his $11 price target, saying that the shares "have traded down 15%, since peaking at $10 following the company's successful result from the Federal Reserve's annual stress tests in March, creating "a 29% upside potential to our price target, which we believe, even with BAC's heightened risk profile, justifies a BUY rating."

Bank of America's shares have returned 54% year-to-date, through Tuesday's close at $8.54, following a 58% decline during 2011. Putting those numbers in perspective, the shares are down 36% over the past 52 weeks.

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Despite the year-to-date run-up, Bank of America's shares still trade for just 0.7 times the company's reported Dec. 30 tangible book value of $12.95. The shares trade for eight times the consensus 2013 earnings estimate of $1.06, among analysts polled by Thomson Reuters. The consensus 2012 EPS estimate 70 cents.

Bank of America will report its first-quarter results on April 19, with a consensus EPS estimate of 12 cents. Mosby is way ahead of the consensus, estimating BAC will post first-quarter earnings of 20 cents, with a full-year 2012 estimate of $1.01.

Mosby's $11 price target for BAC "is based on taking BAC's projected year-end 2013 tangible book value per share of $15 and netting out our worst-case loss expectation of $70 billion, or $4 unfavorable impact to tangible book value (75% of the recent Fed Stress Test losses)."

The following are the two large-cap banks that Guggenheim says are "positioned to create 15-20% earnings per share growth in 2012," with each reporting "favorable earnings surprises in the last five quarters." Mosby believes this trend will continue when first-quarter results are announced.

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