Bank of America Corp. (BAC) received an upgrade from KBW on Friday, with the financial services firm raising its rating on the megabank from market perform to outperform. Additionally, KBW adjusted Bank of America’s price target upwards from $37 per share to $46 per share. Despite a slight decline of 0.9% in premarket trading on Friday, Bank of America’s stock has shown a robust performance in 2024, rising by 16.6%, which outpaces the broader S&P 500 index’s gain of 13.9%.
Analyst David Konrad highlighted several factors contributing to the positive outlook on Bank of America. One of the key drivers behind the upgrade is the anticipated increase in net interest income for the fourth quarter of 2024. KBW projects this income to exceed its previous estimates by approximately 5%, driven by Bank of America’s efforts to enhance its balance sheet and improve yields in its business lending segment.
Net interest income, which represents the profit banks earn from loans after deducting the interest paid on deposits, is expected to benefit significantly from these initiatives. Bank of America’s strategy includes optimizing its asset holdings to improve returns and bolstering yields in commercial and industrial loans, particularly following a slowdown in acquisition financing in recent quarters.
Konrad emphasized that Bank of America is progressing towards achieving its target of delivering a 15% return on tangible common equity (ROTCE). The bank has been reallocating its cash flows towards higher-yielding available-for-sale (AVS) securities while divesting longer-term held-to-maturity (HTM) assets, which enhances its earnings potential and supports profitability metrics.
Moreover, Bank of America’s resilience and market positioning have positioned it favorably among customers seeking stability amid uncertainties in the regional banking sector, especially related to commercial real estate exposures. Konrad noted that Bank of America continues to gain market share in deposits due to its scale, comprehensive product offerings, and perceived “safe haven” status in the market.
From a credit perspective, Bank of America is regarded as one of the top names in KBW’s coverage universe, characterized by a high-quality corporate loan portfolio and relatively lower exposure (7%) to commercial real estate compared to other large-cap banks (14%). This positioning further strengthens the bank’s risk profile and underscores its attractiveness to investors seeking stable returns and reduced sector-specific risks.
In conclusion, KBW’s upgrade reflects confidence in Bank of America’s strategic initiatives, robust financial metrics, and prospects for improved earnings growth through enhanced net interest income and prudent capital management strategies. These factors collectively reinforce Bank of America’s position as a leading player in the financial services industry, poised to deliver value to shareholders amidst evolving market conditions.