Credit Suisse raised its rating on Bank of America (NYSE:BAC) from “Neutral” to “Outperform,” saying it was the cheapest stock among all the large-cap banks to invest in.
According to the brokerage, Bank of America paying back the TARP funds was also a key factor in their assessment, saying it should definitely add to the earnings of the company. Recent capital raise was probably a bigger factor though, a positive sign the company is ready for negative loan fallout when more defaults occur in 2010.
The price target for shares in the company were increased by Credit Suisse analysts from $17 to $21. The stock had closed on Wednesday at $16.39.
Some analysts who had removed Bank of America from their recommend lists in the recent past weren’t as enthusiastic as Credit Suisse about the giant bank, saying they wouldn’t invest in the company at this time, seeing technical support more in the $14 range, with overhead resistance somewhere around $18 a share.
While Credit Suisse lowered its earnings outlook for Bank of America in 2009, they raised their earnings estimates for the company in 2010, saying it should grow from their original estimate of 80 cents a share to 90 cents a share going forward. For 2009, analysts at Credit Suisse revised their view of earnings from the estimation of 45 cents a share profit to a 4 cents a share loss. Most of that was based on a $4.1 billion charge in the fourth quarter from paying back the TARP funds.
Other positives for Bank of America mentioned by Credit Suisse analysts were that problem asset growth should turn negative by the second quarter of 2010, while non-accrual loans should slow down in growth as well.
If Credit Suisse is correct, and the stock reaches $21 a share, it would put Bank of America at 7.9 times normalized earnings and equal 1.5 times its forward tangible book value.
