Bank of America (BAC) Pencil Remains Sharp, 2014 Should Get Cleaner - Jefferies
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Rating Summary:
19 Buy, 20 Hold, 2 Sell
Rating Trend: Down
Today's Overall Ratings:
Up: 20 | Down: 14 | New: 22
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Shares of Bank of America (NYSE: BAC) are mildly higher Thursday following positive commentary at Jefferies following meetings.
Analyst Ken Usdin said, "We recently met with BofA CFO Bruce Thompson and came away confident in BAC's ability to deliver on expenses. The BAC story should get cleaner '14 as the revenue outlook improves and legacy mortgage/litigation burdens further subside following aggressive actions in 1Q. We continue to like BAC due to a visible path to improved profitability, step-up potential for normalized earnings, and better capital return over time." The firm reiterated a Buy rating price target of $18.50.
On expenses, Usdin notes operating leverage was soft in 1Q, but the results included a handful of small episodic expense items (and some good costs related to revenues). "We expect better cost trends going forward, as BAC is firmly committed to delivering the final $0.3B of quarterly New BAC cost saves and reducing Legacy Asset Servicing (LAS) costs to a $0.5B run-rate by YE15." he added, "Longer-term, we believe there could be incremental expense benefits as investment spend crests and environmental costs (e.g. legal bills) subside.
The analyst also sees some light at the end of the litigation tunnel. He commented, "BAC aggressively addressed mortgage-elated and other legal issues in 1Q (with no new ones added), which should clear a path for lower future costs. While not completely out of the woods, BAC's large remaining issues are more observable (DOJ, State AGs, RMBS Working Group investigations, and remaining private label suites). We believe the majority of major litigation items are behind, but we model a few more quarters of elevated legal costs."
While the revenue outlook is not great, he sees some signs of improvement underneath. Lastly, the firm estimates a $2 EPS run-rate possible in a few years.
For an analyst ratings summary and ratings history on Bank of America click here. For more ratings news on Bank of America click here.
Shares of Bank of America closed at $16.37 yesterday.
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