NEW YORK (
) -- With
Bank of America's
shares rising steadily since mid-February, investors are wondering whether they'll reverse course as they did a few months ago, or finally break free of the teens as analysts predict.
The stock has traded in a range of $14.25 to $18.35 since Feb. 9. It broke through the $18 barrier on March 25 for the first time in over five months, and has hovered around that level for the past few sessions on relatively light volume.
Year-to-date, Bank of America is up about 18% as financial stocks have outpaced the broad market with the
KBW Bank Index
21.5% higher in 2010 vs. gains of roughly 4% and 5% for the
Dow Jones Industrial Average
respectively through Wednesday's end of the first quarter.
Wall Street has grown much more bullish on the banking sector's prospects on indications that loan losses may have reached their zenith, and the economic recovery is underway. Bank of America benefits both from its size and diversity, as the biggest U.S. bank and a leader in many financial services categories.
Better clarity about the company's strategy now that CEO Brian Moynihan has outlined a comprehensive business plan to whittle down less profitable businesses and grow market share in others is also fueling the optimism.
Of 27 analysts that cover Bank of America, 23 rate its stock at least a buy, and the other four rate it a hold. The median 12-month price target for the shares is $21, implying upside of nearly 18% from current levels.
First-quarter results look to be the next major catalyst for the stock. The company is slated to report its numbers on April 16, and the current average estimate of analysts polled by
is for a profit of 8 cents a share on revenue of $27.6 billion, down from earnings of 44 cents a share on revenue of $37.76 billion in the same period a year earlier, but an improvement from a loss of 60 cents a share on revenue of $25.1 billion in the fourth quarter.
On Wednesday, Citigroup analyst Keith Horowitz reiterated his buy rating on the stock. He said that despite being the biggest U.S. mortgage lender, recent worries that Bank of America and its peers will have to buy back poorly underwritten loans from
"While the consensus view is that
Bank of America has larger risk vs. peers, we believe concerns are overdone and that risk is manageable," Horowitz said.
Taking a different tack, Stifel Nicolaus analyst Chris Mutascio asserted a week earlier that "if book value is the measure then
Bank of America is the stock."
Mutascio noted that investors have been paying close attention to stated book value since the start of 2010, putting a premium on stocks with low multiples, rather than their expected ability to produce earnings or other metrics. The six large-cap stocks he covers that were trading below book value at year-end have risen 33%, on average, whereas those trading above book value at that time have risen just 15%.
Some outperformers, including
are expected to lose money in 2010. Underperformers like
are expected to post a profit.
Yet Bank of America, which is up just 14% so far this year, is trading at 0.7% book value and is expected to earn 80 cents per share in 2010, on average.
Its stock "has a good bit of catching up to do given that it remains very inexpensive on the valuation metric of choice currently (price-to-book value) as well as on a price-to-normalized earnings basis, which is the measure investors will migrate to at some point," Mutascio says.
Rochdale Securities analyst Richard Bove has also been bullish on Bank of America's prospects, saying in early March that its stock -- then trading at $16.71 -- could potentially double in price. In more recent reports, the analyst has been supportive of Moynihan's strategy, saying it "may create a better and stronger company."
Bove notes some potential risks: Zealous regulators and punitive legislation, as well as the possibility that Moynihan may not be able to pull off the huge task of restructuring a business model that's been in place for several decades.
Nonetheless, he has a 12-month price target of $21, and, like so many of his peers, rates Bank of America shares a buy.
-- Written by Lauren Tara LaCapra in New York