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!

Make Some Bank on Bank of America

Hey, if you don't believe me, ask Warren Buffett. He made a $5 billion preferred stock purchase in August 2011 with warrants to purchase another $700 million in common stock at $7.15 a share. OK, he got a deal that you or I could not get but he made a huge bet when few others people did. The stock fell another 28% from where Buffett had the warrant price, to a post-crisis low of $5.17 in November 2011.

Here is how Bank of America gets to $30 a share: Earn $1.88 per share by the end of fiscal 2015 or a 16% premium from the current analysts' average of $1.62 for that same period, and an industry average price-to-earnings ratio of 16 times or up 11% from its current level.

So how reasonable are these assumptions and why should you bother given that the other banks in the group appear to provide returns over and above what Bank of America can offer? Let's take the first part of this question and look inside the numbers. How reasonable is obtaining a $1.88 EPS for fiscal year 2015? Of the 19 analysts that cover Bank of America, several have pegged their high estimates at $1.94 for 2015, although some do have estimates as low as a $1.50 per share.

Bank of America has beaten analysts' estimates by an average of 19% over the last five quarters, so the assumption of an EPS beat by 16% for fiscal year 2015 seems reasonable.

As for the price-to-earnings ratio I'm projecting, the current S&P 500 index P/E is 19.77 times, a discount of almost 24%, and has remained above the 16 times threshold for the last 20 months. The historical average for the S&P 500 from 1900 to 2005 was 16 times, so again the assumption seems valid. That gets us to a $30.08 share price by fiscal year 2015 (a 71% return from its current price).

Given that the bank passed its most recent Federal Reserve stress tests, they may look for a way to return excess capital and boost shareholder value with buybacks as well.

At the time of publication, the author held shares of Bank of America, Citigroup and Wells Fargo but held no positions in any of the other stocks mentioned.

This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.

2 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 16,960.57 -123.23 -0.72%
S&P 500 1,978.34 -9.64 -0.48%
NASDAQ 4,449.5640 -22.5440 -0.50%

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