Citigroup Pounds the Table on BofA (BAC), Says Worries Priced In
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Price: $61.63 -0.37%
Rating Summary:
26 Buy, 18 Hold, 2 Sell
Rating Trend:
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Today's Overall Ratings:
Up: 8 | Down: 5 | New: 26
Rating Summary:
26 Buy, 18 Hold, 2 Sell
Rating Trend:
Down
Today's Overall Ratings:
Up: 8 | Down: 5 | New: 26
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Despite a myriad of issues, analysts at Citigroup believe Bank of America (NYSE: BAC) offers a great buying opportunity with limited downside.
In a research report Thursday, Citigroup analyst Keith Horowitz noted since March 24, when news broke about a higher SIFI buffer, shares of BofA have been the worst stock in the firm's coverage universe: down 17% versus a 7% slide in the KBW Bank Index (BKX).
Horowitz said while BofA is among the most impacted by a weaker economy, housing and higher-than-expected G-SIFI buffer, the stock is now trading at a 15% discount to tangible book value. Despite such concerns, Horowitz believes BofA won't need to raise additional capital and the bank's underlying business mix can support a 14% return on tangible equity.
"We see current levels as a very attractive buying opportunity for BAC even in a prolonged slow growth economy," he said.
Horowitz said with shares trading at a 15% discount to tangible book value, or roughly $20 billion, there is a good bit of mortgage exposure priced in.
He believes the market has overshot on the G-SIFI buffer, and see the odds of FSB and the US adopting a 300 bp Tier 1 common buffer as very low, which can be a positive catalyst.
Even under a scenario where BofA is forced to hold 10% Tier 1 common, the analyst estimates RoTE would fall to 11.5% or in line with its cost of capital, and the firm's target price would drop to slightly below $14.
Citi maintains a Buy rating and $17 price target on BofA, suggesting approximately 52% upside from Wednesday's close.
In a research report Thursday, Citigroup analyst Keith Horowitz noted since March 24, when news broke about a higher SIFI buffer, shares of BofA have been the worst stock in the firm's coverage universe: down 17% versus a 7% slide in the KBW Bank Index (BKX).
Horowitz said while BofA is among the most impacted by a weaker economy, housing and higher-than-expected G-SIFI buffer, the stock is now trading at a 15% discount to tangible book value. Despite such concerns, Horowitz believes BofA won't need to raise additional capital and the bank's underlying business mix can support a 14% return on tangible equity.
"We see current levels as a very attractive buying opportunity for BAC even in a prolonged slow growth economy," he said.
Horowitz said with shares trading at a 15% discount to tangible book value, or roughly $20 billion, there is a good bit of mortgage exposure priced in.
He believes the market has overshot on the G-SIFI buffer, and see the odds of FSB and the US adopting a 300 bp Tier 1 common buffer as very low, which can be a positive catalyst.
Even under a scenario where BofA is forced to hold 10% Tier 1 common, the analyst estimates RoTE would fall to 11.5% or in line with its cost of capital, and the firm's target price would drop to slightly below $14.
Citi maintains a Buy rating and $17 price target on BofA, suggesting approximately 52% upside from Wednesday's close.
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