Staite estimates that by the end of 2014, "JPM will eliminate its deficit but by this stage BAC will have amassed $29bn in surplus equity."
The analyst expects Bank of America to be approved to repurchase $4 billion worth of common shares during 2013, with buybacks increasing to $10 billion in 2014, which will "shrink BAC's shares outstanding by around 10% which provides part of the explanation for why our 2014 EPS estimates are 25% above consensus." The consensus among analysts polled by Thomson Reuters is for Bank of America to earn 97 cents a share in 2013, with EPS increasing by 29% in 2014 to $1.25.
Staite estimates that Bank of America will earn $1.23 a share in 2013, increasing to EPS of $1.53 in 2014.
Bank of America's shares currently trade for 10.9 times the consensus 2013 EPS estimate and for 8.6 times Staite's 2013 estimate. The analyst said that "the build-up of surplus capital will also reduce the perception of risk around BAC and drive an increase in the valuation multiple."
A Contrary View
KBW late on Tuesday announced that it was transferring its coverage of Bank of America from Jefferson Harralson and maintaining its "Market Perform" rating on the shares, with a $10 price target, and cutting its 2013 EPS estimate to 95 cents from $1.10, "due to lower expectations in spread income and revenues in global markets." Spread income will certainly not be helped by the Federal Reserve's announcement on Wednesday that it will at least temporarily continue its monthly purchases of $45 billion in long-term Treasury securities and $40 billion in mortgage-backed securities in 2013, while keeping the short-term federal funds rate in a range of zero to 0.25% until the U.S. unemployment rate improves to 6.5%. KBW also established a 2014 EPS estimate of $1.20 for Bank of America, with the estimate increasing to $1.30 for 2015. Despite the neutral assessment, KBW analyst David Konrad said that "we expect core earnings for BAC to improve through 2013," with "continued improvement in US housing, the company's cost-cutting initiatives, and continued benefits from liability management, that may help support spread income during a very challenging interest rate environment."