Bank Of America Would Bear The Brunt Of Higher Operating And Credit Costs: Analyst

BMO Capital Markets analyst James Fotheringham maintained the Market Perform rating on Bank Of America Corporation BAC, lowering the price target to $36 from $37.

Following BAC’s 4Q23 fees and cost-driven miss, the analyst lowered the near-term estimates by 7% due to higher than previously modeled operating and credit costs, in tandem with lower expected share repurchases.

Fotheringham says he sees more reliable return potential from other U.S. FIG stocks under his coverage.

For instance, the analyst highlighted greater investment opportunities among aircraft lessors AerCap Holdings N.V. AER and Air Lease Corporation AL, which will likely benefit from less exposure to funding, regulatory, and credit risks.

In the recently reported fourth quarter, BAC’s revenue, net of interest expense, decreased 10% year-over-year to $22.0 billion. Adjusted revenue declined 4% Y/Y to $23.5 billion, missing the consensus of $23.7 billion.

The analyst writes the company’s core EPS of $0.66 missed consensus of $0.71 by roughly 7% due to lower-than-expected non-interest revenues and higher core operating expenses.

The analyst lowered the near-term estimates following the quarterly results due to higher expected operating and credit costs.

Fotheringham lowered BAC’s 2024E core EPS estimate by 5% (to $3.13 from $3.29) due to higher than previously modeled operating and credit costs.

The analyst adds that the company’s 2025 core EPS estimate is essentially unchanged (now $3.50, was $3.51).

Price Action: BAC shares closed lower by 2.07% to $32.12 on Tuesday. 

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