UPDATE: Stifel Nicolaus Upgrades BofA (BAC) to Buy; Strong EPS Trajectory, Improved Capital and Likely Dividend Hike

November 19, 2012 7:52 AM EST
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Price: $23.01 --0%

Rating Summary:
    24 Buy, 13 Hold, 2 Sell

Rating Trend: Up Up

Today's Overall Ratings:
    Up: 29 | Down: 28 | New: 6
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(Updated - November 19, 2012 8:37 AM EST)

Stifel Nicolaus upgraded Bank of America (NYSE: BAC) from Hold to Buy and established an $11 price target.

The upgrade was driven by the belief that Bank of America's EPS trajectory will be better than peers over the next two years, Stifel Nicolaus analyst Christopher Mutascio stated. This will be driven as a decline in operating expenses will more than offset sluggish revenue growth.

Mutascio projects 30% EPS growth rate in 2014 for Bank of America, versus 5% for the rest of the large cap bank universe.

"We believe that without the declining expense base lever that BAC possesses, many banks are likely to post stagnant/modest EPS growth over the next two years as net interest margin pressures continue and loan loss provisioning inflects," Mutascio comments. "BAC is actually better positioned for the current environment than many banks that have already bled the loan loss reserves dry, have little exposure to mortgage origination and debt underwriting in the low interest rate environment, and have no material expense reductions on the horizon."

With a Basel III Tier 1 common capital ratio of 9% in Q4, the company has rebuilt its capital ratios much faster than expected, the analyst also notes. This will alow the company to "to ask for and receive approval for a dividend increase during the upcoming CCAR process." This in turn could improve investor sentiment in a name that is under-owned.

Mutascio continues, "We like the combination of the company’s potential EPS growth trajectory, its improved capital position and likely dividend increase, leverage to what is working in the current environment (mortgage origination and debt underwriting) and our belief that it is under-owned. These traits make BAC shares a relatively attractive place to be in a sector struggling for catalysts."

EPS estimates remain $0.41, $0.92 and $1.20 for 2012, 2013 and 2014, respectively.

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 $9.12 yesterday.

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