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Bank of America’s Stock: Cheaper than Peers’?

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Analysts expect upside

Since the beginning of 2015, Bank of America Corporation’s (BAC) shares have underperformed the financial sector as well as the shares of its peers. The Financial Select Sector SPDR ETF (XLF) represents the US financials sector. Year to date, shares of Bank of America have returned -12.9%. In comparison, XLF has returned -6.0%.

On October 9, 2015, the bank’s stock closed at $15.58. With an average consensus price target of $19.16 and a median target estimate of $20, this stock is still selling at a discount of 22% to analyst expectations. This suggests that Wall Street is upbeat about the stock, despite prolonged corrections.

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We can see this same trend if we look at the ratings of Bank of America’s stock. Among the 40 analysts following the stock, 28 have assigned “buy” ratings. Shares of Bank of America have received only three “sell” recommendations and have been currently assigned only nine “hold” ratings. If 3Q15 earnings beat analyst expectations, we could see some of these “hold” ratings converted into further “buys.”

However, we should note that the company’s estimated EPS (earnings per share) has been revised downward 16 times by research brokerages in the past four weeks, with just one upward revision.

Valuations

Shares of the company are currently trading at a PB (price-to-book) multiple of 0.71x, while the average PB multiple for other banks in the XLF portfolio is 1.16x, making Bank of America the cheapest among its peer group in XLF.

Meanwhile, large-capped peers like Wells Fargo & Company (WFC), Citigroup (C), JP Morgan Chase (JPM), and Goldman Sachs Group (GS) are trading at PB multiples of 1.60x, 0.75x, 1.06x, and 1.01x, respectively.

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