UBS Says Bank of America (BAC) Weakness is Due to Energy Exposure Concerns - Cuts PT to $18

UBS maintained a Buy rating on Bank of America (NYSE: BAC), and cut the price target to $18.00 (from $20.00), as shares underperform following 4Q earnings. UBS says that the weakness is due to concerns around the company's energy exposure, specifically its "higher risk" subsectors. Management remains confident that core expenses will run just under $13 billion per quarter in a moderately improving business environment despite upward pressure from regulation, growth investments, etc. The company also achieved $800 million of core expenses in LAS, which brings management's next goal of $500 million per quarter into focus.

Analyst Brennan Hawken commented, "It is our sense that BAC's shares underperformed following 4Q earnings due to concerns around the company's energy exposure, specifically its "higher risk" subsectors. BAC disclosed a total utilized energy exposure of $21.3 billion (2% of total corporate loans), of which the company deemed $8.3 billion to be in high risk subsectors (E&P and servicers). The fact that this reserve level was lower than some of the other firms have indicated raised concerns that further reserve build may be a headwind for BofA from current levels. Of course, the comparisons may not be valid, since credit quality can vary across portfolios (for example, WFC is carrying a higher reserve as a percentage its energy portfolio but most of the exposure is below IG)."

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 $14.24 yesterday.

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