Bank of America
Bank of America's shares have now returned 69% year-to-date, following a 58% decline during 2011.
The shares trade for 0.7 times their reported Sept. 30 tangible book value of $13.48, and for 10 times the consensus 2013 EPS estimate of 97 cents.
Following a meeting with the company's CFO Bruce Thompson, Atlantic Equities analyst Richard Staite on Thursday reiterated his "Buy" rating for Bank of America, with a $12 price target, saying that Thomson had "expressed confidence that in Q4 there will be a decline in Legacy Asset Servicing costs, that mortgage delinquencies will decline and that the [net interest margin] will benefit from lower funding costs."
Staite last month upgraded Bank of America from a neutral rating, as the company "has a bigger cost-cutting story, greater potential to reduce funding costs and faster improvement in capital ratios," relative to peers.During the third quarter, two bright spots for Bank of America's long suffering investors were widening of the net interest margin to 2.27% from 2.15% the previous quarter, according to Thomson Reuters Bank Insight. This ran counter to the majority of large industry players, in the difficult interest rate environment. With the Federal Reserve keeping its target short-term federal funds rate in a range of zero to 0.25% since the end of 2008, most banks have already seen the majority of funding cost savings. Meanwhile the Fed in September increased its monthly purchases of long-term mortgage-backed securities by $40 billion, in an effort to hold long-term rates at their historically low levels. Staite said that "BAC is somewhat unique among peers in having more high-cost long-term debt inherited from Countrywide and Merrill Lynch. However, this is running off ($28bn expected in 2013), resulting in a decline in funding costs." Bank of America reported an estimated Basel III Tier 1 common equity ratio of 8.97% as of Sept. 30, which was the highest among the "big four" U.S. banks, compared to 8.6% for Citigroup (C), 8.4% for JPMorgan Chase, and 8.02% for Wells Fargo (WFC). Staite said that "we think that the ratio could continue to improve," and that Thomson "highlighted [deferred tax asset] utilization, PE sales, financial investment sales, structured credit run-off and reduced mortgage delinquencies as factors to consider." While Staite didn't predict that Bank of America would increase its dividend from the current nominal quarterly payout of a penny a share, or seek Federal Reserve permission for common share buybacks during 2013, Deutsche Bank analyst Matt O'Connor on Tuesday estimated that Bank of America would return a total of $2.981 billion to common shareholders next year, through $1.481 billion in dividends, plus $1.500 billion in share buybacks. BAC data by YCharts
Interested in more on Bank of America? See TheStreet Ratings' report card for this stock.
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