BMO Upgrades Bank Of America Ahead Of Q2 Earnings

Bank of America Corp BAC's valuation multiples and consensus estimates for 2020 appear too low, according to BMO Capital Markets.

The Analyst

BMO’s James Fotheringham upgraded Bank of America from Market Perform to Outperform, keeping the price target at $37.

The Thesis

There is upside to the consensus estimates for Bank of America’s earnings in 2020, as they seem to reflect too low non-interest income and buyback assumptions and too high an impact of tax and provisions, Fotheringham said in the note.

BMO’s estimates were 10% higher than the consensus expectations for non-GAAP EPS in 2020, the analyst mentioned. He added that the upward earnings revision should more than offset any NIM dilution resulting from a Fed rate cut.

Fotheringham believes a value-versus-growth analysis should be used to pick stocks in an environment in which “credit is benign and capital is sufficient across the U.S. financial system.” Given its strong operating leverage, Bank of America offers “above-average capital-adjusted growth” at a valuation multiple that is 15 percent below the historical average, the analyst wrote.

Price Action

Shares of Bank of America traded about 2.6% higher at $28.65 Tuesday morning. The company is expected to release earnings on July 16.

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