Goldman Sachs thinks Bank of America is at an “inflection” point
In a report last week, Goldman Sachs (GS) reiterated its “conviction buy” rating on Bank of America (BAC) and shared a positive outlook on the stock after hosting an investor meeting with BAC chair and CEO Brian Moynihan.
Goldman Sachs analyst Richard Ramsden said, “BAC is on the cusp of an inflection in operating leverage as revenue growth and cost reductions appear set to occur concurrently.” Ramsden has assigned a price target of $17 to the stock.
“Historically,” Ramsden continued, “cost cuts have largely been offset by revenue attrition. However, BAC is now lapping many of its legacy revenue headwinds (i.e. portfolio divestures, loan run offs and footprint rationalization) as recent investments in the consumer and corporate franchises are beginning to bear fruit.”
Goldman Sachs thinks Bank of America’s target of 10% ROTCE (return on tangible common equity) is achievable even if interest rates (TLT) remain at their current levels, and that at its price-to-book multiple of 0.67x, it looks attractive.
Banking peers JPMorgan Chase (JPM) and Wells Fargo are trading above their book values. Such low valuations provide lucrative entry points for long-term investors. Wall Street (SPY) (XLF) analysts are bullish on Bank of America, as 74% of them have rated it as a “buy.”
Meanwhile, brokerage house Sandler O’Neill & Partners also raised its 2017 EPS (earnings per share) estimates for Bank of America from $1.45 to $1.50 and raised its price target to $18 from the earlier $16. They maintain their “buy” ratings on the stock.
Analysts are upbeat on Bank of America after they met with the company’s chair and CEO Brian Moynihan at an investor meeting last week. “Management believes that fee revenues have reached the inflection point where the benefits from activity level improvements begin to overtake the drag from divestitures. Coupled with some asset-growth-related net interest income [NII] improvement, we remain confident that Bank of America can begin generating more visible revenue growth even without interest-rate-related tailwinds,” said Sandler O’Neill & Partners in a report.