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Has Bank of America Stock Lost Its Steam?

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Dec. 5 2016, Published 12:31 p.m. ET

Bank of America rose 22% in November

Bank of America had a great November thanks to Donald Trump’s presidential victory. However, it also led to several downgrades for the stock. The stock rose 22% in November. The recent rally led analysts to see limited upside potential for the stock.

Last week, we saw Guggenheim and Baird cut Bank of America’s stock ratings. Deutsche Bank cut its ratings on the stock. It advised investors to “take profits and selectively reduce exposure” to US banks (XLF). Baird analyst David George cut Bank of America to “neutral” from “overweight.” In a note to investors, he mentioned, “We like the company’s improving operating leverage, steady risk-adjusted growth, and prospects for more aggressive capital return, but shares have rallied ~30% QTD, and we would wait for a larger pullback before adding to positions.”

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Guggenheim analysts Eric Wasserstrom and Jeff Cantwell downgraded Bank of America to “neutral” from “buy.” They explained in an investor’s note, “Our downgrade is motivated by three factors: 1) Although we are increasing our fair value estimate to $22 from $19, the shares are now within 10% of this valuation, which embeds our above-consensus EPS estimates for 2017-18 and reflects our expectations for incremental cost reductions and improving asset growth. 2) Further, we believe that additional upside to our EPS estimates will be increasingly driven by macro-factors rather than company-specific drivers, an outlook that may now be more fully discounted in the stock’s valuation. 3) The shares’ current valuation is also in line with its historical level relative to the peer group.”

Earlier in the month, Deutsche Bank (DB) downgraded Bank of America to “hold” from “buy.” It assigned a target price of $17.5. Deutsche Bank analyst Matt O’Connor thinks that Bank of America isn’t trading at discount valuations. He lowered his target upside for the stock. In a note to investors last week he said, “Our $17.50 target price assumes BAC shares trade at a 5% premium to our target group multiple for the Market Sensitive banks (WFC) of ~11x our 2017E given continued execution on expenses, capital and credit.”

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