Shares of Bank of America (BAC) - Get Report were rising Thursday after analysts at DA Davidson upgraded the stock to buy from neutral as recognition for the bank's long-standing efforts to de-risk its balance sheet since 2008.
Despite the upgrade, the firm also slashed its price target by a third to $24 a share from $36, reflecting the current equity environment thanks to the coronavirus pandemic.
"Since the 2008 crisis, we believe BAC has outperformed peers in terms of meaningfully reducing balance sheet risk, particularly mortgage related credit risks and credit card risk. As a result, we believe BAC's stock will outperform peers," analyst David Konrad wrote. "However, we do anticipate total credit costs increasing to $8.6B in 2021 from $3.5B in 2019. Embedded in this assumption is credit card credit costs increasing from 3.07% to 6.50% in 2Q21."
While Bank of America's energy exposure stood at about 2% of loans, the firm noted that historically the bank's energy loans are either vertically integrated with investment-grade companies or have sovereign backing, according to DA Davidson's note.
There also is declining net interest income in the bank's future as the Federal Reserve has dropped benchmark interest rates in order to stabilize markets, but the firm also expects Bank of America to hold expenses steady.
"We expect expenses to be held in check at just over $53B for the next two years. However, due to the declining revenues, we expect the efficiency ratio to back up to 63% in 2020 from 58% in 2019. We are forecasting an efficiency ratio of 60% in 2021," Konrad wrote.
Bank of America shares rose 3.8% to $20.53 on Thursday.