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Why Bank of America (BAC) Stock Continues To Decline This Afternoon

NEW YORK (TheStreet) -- Shares of Bank of America Corp.  (BAC) continue to fall this afternoon following the bank's announcement earlier today that it would suspend stock repurchases, a dividend increase and resubmit a capital plan, after it uncovered an incorrect accounting adjustment. 

The stock is down -6.30% to $14.94.

Morgan Stanley (MS) analysts today said the bank should retain its dividend increase but not continue its repurchase plan, the Wall Street Journal reports.

Analysts say the market reaction is overdone. Investors are taking into account that stock buybacks will be eliminated through 2016, according to Morgan Stanley.

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It was positive that the error was found internally through the CFO group after a review of the 10-Q filing, which was better than the mistake being brought to their attention by a third party or the Fed. The hit to earnings per share will be about 1.3%, according to the report.

Morgan Stanley analysts lowered their 2015 earnings per share estimate by 2 cents to $1.79 on higher share count, but the adjustment had no impact to their 2014 EPS estimate, the Journal noted.

The company said it will review its financial accounts and plans to request a capital action plan that is less than its previously announced 2014 plan.

The suspension of its capital-return plans happened at the "request" of the Federal Reserve after the bank told the Fed of the miscalculations, according to a Bank of America statement.
 

TheStreet Ratings team rates BANK OF AMERICA CORP as a Buy with a ratings score of B. TheStreet Ratings Team has this to say about their recommendation:

"We rate BANK OF AMERICA CORP (BAC) a BUY. This is driven by a few notable strengths, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its expanding profit margins, solid stock price performance and notable return on equity. We feel these strengths outweigh the fact that the company has had sub par growth in net income."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • The gross profit margin for BANK OF AMERICA CORP is currently very high, coming in at 84.82%. It has increased from the same quarter the previous year. Regardless of the strong results of the gross profit margin, the net profit margin of -1.08% is in-line with the industry average.
  • Compared to its closing price of one year ago, BAC's share price has jumped by 32.73%, exceeding the performance of the broader market during that same time frame. We feel that the stock's sharp appreciation over the last year has driven it to a price level which is now somewhat expensive compared to the rest of its industry. The other strengths this company shows, however, justify the higher price levels.
  • BANK OF AMERICA CORP has experienced a steep decline in earnings per share in the most recent quarter in comparison to its performance from the same quarter a year ago. This company has reported somewhat volatile earnings recently. But, we feel it is poised for EPS growth in the coming year. During the past fiscal year, BANK OF AMERICA CORP increased its bottom line by earning $0.91 versus $0.25 in the prior year. This year, the market expects an improvement in earnings ($0.96 versus $0.91).
  • Regardless of the drop in revenue, the company managed to outperform against the industry average of 13.2%. Since the same quarter one year prior, revenues slightly dropped by 4.6%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.
  • The return on equity has improved slightly when compared to the same quarter one year prior. This can be construed as a modest strength in the organization. Compared to other companies in the Commercial Banks industry and the overall market on the basis of return on equity, BANK OF AMERICA CORP underperformed against that of the industry average and is significantly less than that of the S&P 500.
  • You can view the full analysis from the report here: BAC Ratings Report

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