Here’s Why Goldman Sachs Raised Its Price Target for BAC



Goldman Sachs reiterated its “buy” rating for BAC

In a report last week, Goldman Sachs (GS) reiterated its “conviction buy” rating on Bank of America (BAC) and raised its price target for the company from $17 to $19.

Meanwhile, brokerage house Sandler O’Neill & Partners also raised its 2017 EPS (earnings per share) estimate for Bank of America from $1.45 to $1.50 and raised its price target for the company to $18 from the earlier $16. It maintains its “buy” rating on the stock.

Goldman Sachs analyst Richard Ramsden believes Bank of America’s target of 10% ROTCE (return on tangible common equity) is achievable even if interest rates remain at current levels. Ramsden believes that Citigroup (C) (WFC) will fall short of its targets.

In a report to investors, Ramsden said, “We believe Bank of America is hitting an inflection point with operating leverage being driven by a combination of low single digit revenue growth, absolute reductions in the expense base, and stable credit.”

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Goldman also expects consumer banking (XLF) and wealth management to drive Bank of America’s growth in the coming years. Further, it expects 4% growth in the bank’s top line by 2018. “Importantly, we do not see the expense initiatives impacting revenues given the bulk of the restructuring stems from lower data center costs and continued run-off in the LAS portfolio,” Goldman noted.

According to Sandler O’Neill & Partners in a report, “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.”


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