Bank Stocks Pull Back
The broad indices ended mixed, after the National Association of Realtors reported its pending home sales index declined by 0.4% to 104.8% in February, although the index was still 8.4% higher than a year earlier. Economists on average expected pending home sales for February to increase by 1% from January, according to Zacks. While it may seem strange after so many years of pressure on home prices from a glut of houses for sale, an inventory shortage has developed in many U.S. regions and is limiting sales, according to NAR chief economist Lawrence Yun. The NAR report followed a report from CoreLogic on Tuesday, saying, shadow inventory -- distressed properties not yet listed for sale -- was declining sharply. "Only new home construction can genuinely help relieve the inventory shortage, and housing starts need to rise at least 50 percent from current levels," in order to bring inventories to normal levels, Yun said. "Most local home builders are small businesses and simply don't have access to capital on Wall Street," he said, adding that "clearer regulatory rules, applied to construction loans for smaller community banks and credit unions, could bring many small-sized builders back into the market."
Bank of America
Shares of Bank of America ( BAC) were down slightly to close at $12.23. The shares have returned 5% this year, following a 110% return during 2012. The shares trade for 0.9 times their reported Dec. 31 tangible book value of $13.36, and for 9.4 times the consensus 2014 earnings estimate of $1.30, among analysts polled by Thomson Reuters. The consensus 2013 EPS estimate is 98 cents. Atlantic Equities analyst Richard State said Wednesday the continued strengthening of the U.S. housing market supports " at least 40% upside" for Bank of America's shares, as rising home prices drive "lower operating costs, lower provision costs and increased capital return." The provision costs refer to additions to loan loss reserves, as well as reserves for mortgage repurchase claims. Staite expects Bank of America's earnings per share to rise "towards $2.00 by 2016," as legacy mortgage costs decline, funding costs decline and the company continues to repurchase shares. The analyst rates Bank of America "overweight," with a 12-month price target of $14.70, but sees further upside to a price of $17.20 by the end of 2014, as the shares trade up to a multiple of 1.1 times tangible book value. -- Written by Philip van Doorn in Jupiter, Fla. >Contact by Email. Follow @PhilipvanDoorn