This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

Stop Buying Bank of America: Credit Suisse (Update 1)

Updated with late-session bank stock action.

NEW YORK (TheStreet) -- Shares of Bank of America (BAC) look quite pricey, even when compared to better performing megabanks.

Credit Suisse analyst Moshe Orenbuch on Wednesday downgraded Bank of America to a neutral rating from an "Outperform" rating, even though he raised his price target for the shares by a dollar to $12.00. The analyst said that the stock's "current valuation appears to be ahead of the company's near to intermediate-term performance and appears to be discounting significantly faster improvements in efficiency than we would be expecting. At its current valuation, the shares appear to be discounting at least a 16% improvement in costs over the next year vs. our estimate of 10%."

Bank of America's shares were down over 5% in the final hour of trading on Wednesday, to $11.34. While the broad indexes were all holding on to slight gains, the KBW Bank Index (I:BKX) was down 1% to 52.75, with 14 of the 24 index components showing declines.

Shares of Comerica (CMA) were down 1% to $31.54, after Oppenheimer Securities analyst Terry McEvoy downgraded the company to a "Perform" rating from "Market Perform," saying that the recent rise in long-term rates would do nothing for the stock. McEvoy on Wednesday also upgraded KeyCorp (KEY) to "Outperform" from "Perform," with a price target of $11.00, citing the company's improved geographic strategy. Both of these ratings actions are discussed in more detail in TheStreet's earnings preview for regional banks, as is the Wednesday announcement by PNC Financial Services Group (PNC) of several one-time items that will lower third-quarter earnings by 47 cents a share.

PNC's shares were down slightly in late trading, to $60.15.

Bank of America's shares certainly appear expensive to forward earnings when compared to other U.S. banking giants. The shares closed at $11.98 Tuesday, trading for 0.9 times their reported Sept. 30 tangible book value, and for 12.4 times the consensus 2013 earnings estimate of 97 cents, among analysts polled by Thomson Reuters. The consensus 2014 EPS estimate is $1.27. Here's how the valuation compares with the company's largest competitors:

  • Shares of Citigroup (C) closed at $42.46 Tuesday, trading for 0.8 times their reported Sept. 30 tangible book value, and for 9.1 times the consensus 2013 EPS estimate of $4.67. The consensus 2014 EPS estimate is $5.16.
  • Shares of JPMorgan Chase (JPM) closed at $45.50 Tuesday and traded for 1.2 times tangible book value, according to Thomson Reuters Bank Insight, and for 8.6 times the consensus 2013 EPS estimate of $5.31. The consensus 2014 EPS estimate is $5.70.
  • Wells Fargo (WFC) closed at $34.71 Tuesday, trading for 1.7 times tangible book value, and for 9.6 times the consensus 2013 EPS estimate of $3.62. The consensus 2014 EPS estimate is $3.86.
  • Shares of U.S. Bancorp (USB) closed at $32.97 Tuesday, trading for 2.6 times tangible book value, and for 10.7 times the consensus 2013 EPS estimate of $3.08. The consensus 2014 EPS estimate is $3.31.

With the exception of Citigroup, which is going through its own cleanup process, the other names above have all been posting much stronger earnings than Bank of America, while trading much lower to earnings estimates. According to Thomson Reuters Bank Insight, Bank of America's return on average tangible common equity for the past four quarters through September was 3.50%, compared to 4.89% for Citigroup, 14.03% for JPMorgan Chase, 16.11% for Wells Fargo, and a very strong 21.60% for U.S. Bancorp.

Bank of America will report its fourth-quarter results on Jan. 17. The company announced on Monday that it expected its fourth-quarter earnings to be "modestly positive," as a result of its mortgage putback settlement with Fannie Mae (FNMA) and because of its participation in an $8.5 billion mortgage foreclosure settlement with federal regulators.

The company on Monday also announced that Fannie Mae, Freddie Mac and Ginnie Mae had agreed to allow the company to sell servicing rights on 2 million residential mortgage loans, with an unpaid balance of $306 billion.

1 of 2

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
DOW 16,563.30 -317.06 -1.88%
S&P 500 1,930.67 -39.40 -2.00%
NASDAQ 4,369.7730 -93.1290 -2.09%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs