This Day On The Street
Continue to site
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

Bank of America Has 40% Upside on Housing Recovery: Analyst

NEW YORK ( TheStreet) -- The strong recovery in housing prices could significantly boost earnings and capital at Bank of America (BAC - Get Report) over the next two years, according to Atlantic Equities analyst Richard Staite.

All banks stand to gain from rising home prices as it will likely lead them to "release" mortgage loss reserves as borrowers' financial health improves.

But a more relevant metric at this stage of the recovery for banks would be pre-provision net revenue, which nets out one-time items and provision for loan losses.

Bank of America is likely to see a big improvement on this measure as the recovery in home prices will accelerate the decline in servicing costs which currently run at $10 billion a year at the bank. "Higher prices and housing market activity help reduce foreclosure related losses and speed up the reduction in the number of problem loans," Staite noted in his report.

Improvements in pre-provision net revenue (PPNR) is also a major factor in the Federal Reserve's stress test. Higher PPNR could therefore improve the Bank of America's capital ratios and drive capital returns as well.

Bank of America got Fed approval for a $5 billion buyback in 2013, but the analyst sees this jumping to $10 billion in 2014 and $12 billion in 2015.

Higher earnings and buybacks could lead to a near doubling in earnings per share according to Staite. The analyst expects EPS to climb from $1.05 in 2013 to $2 by 2016.

Staite has a 12-month price target of $14.70 on the stock, which equals Bank of America's tangible book value. However, as Bank of America gets closer to "normalized earnings," Staite expects valuations to improve to 1.1 times tangible book by end 2014, implying a share price of $17.20 , which is a 40% upside from current levels.

Shares of Bank of America are up over 5% this year. The stock closed at $12.28 on Monday.

-- Written by Shanthi Bharatwaj in New York.

>Contact by Email.

Disclosure: TheStreet's editorial policy prohibits staff editors and reporters from holding positions in any individual stocks.

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

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
Stocks Under $10

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

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

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
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Real Money

More than 30 investing pros with skin in the game give you actionable insight and investment ideas.

Product Features:
  • Access to Jim Cramer's daily blog
  • Intraday commentary and news
  • Real-time trading forums
Only $49.95
14-Days Free
14-Days Free
BAC $14.56 0.00%
AAPL $93.74 0.00%
FB $117.58 0.00%
GOOG $693.01 0.00%
TSLA $240.76 0.00%


Chart of I:DJI
DOW 17,773.64 -57.12 -0.32%
S&P 500 2,065.30 -10.51 -0.51%
NASDAQ 4,775.3580 -29.9330 -0.62%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs