How Will Bank of America (BAC) Stock React to U.S. Government's Comments on Court Verdict?

NEW YORK (TheStreet) -- Shares of Bank of America  (BAC)  were flat in morning trading Friday after the U.S. government said the bank's appeal to throw out a jury verdict defied "common sense."

The verdict found the bank liable for selling dubious loans to Fannie Mae and Freddie Mac prior to the financial crisis. The decision led to a $1.27 billion penalty.

The bank's arguments for throwing out the verdict "defy the evidence, the law, and common sense," the government said in a court filing Thursday night. "Evidence of defendants' fraud was abundant."

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The U.S. Department of Justice said in the filing that evidence at the trial proved Bank of America's Countrywide division lied to the two mortgage companies, both controlled by the government, about the quality of the sold loans, and that Countrywide focused on speed and volume rather than quality.

The filing also accused former Countrywide official Rebecca Mairone of attempting to obscure evidence that showed she sold the loans even though she knew they were questionable. Mairone is trying to reverse a liability verdict against her. U.S. District Judge Jed Rakoff in Manhattan ordered her, the only individual charged in the case, to pay $1 million.

Separately, 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 number of 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, notable return on equity and increase in stock price during the past year. 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 86.47%. 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 9.28% trails the industry average.
  • Regardless of the drop in revenue, the company managed to outperform against the industry average of 12.9%. Since the same quarter one year prior, revenues slightly dropped by 5.1%. 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.
  • Compared to where it was 12 months ago, the stock is up, but it has so far lagged the appreciation in the S&P 500. Looking ahead, the stock's rise over the last year has already helped drive it to a level which is relatively expensive compared to the rest of its industry. We feel, however, that the other strengths this company displays justify these higher price levels.
  • BANK OF AMERICA CORP's earnings per share declined by 40.6% in the most recent quarter compared to the same quarter a year ago. This company has reported somewhat volatile earnings recently. We feel it is likely to report a decline in earnings 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. For the next year, the market is expecting a contraction of 57.1% in earnings ($0.39 versus $0.91).
  • You can view the full analysis from the report here: BAC Ratings Report

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