Is Bank of America a Buy?
I was reading 2 different analyst opinions of Bank of America on CNBC.com. One analyst stated that Bank of America had seen a tremendous run up and would languish between $5 and $10 for the next few years. Another analyst stated that he thinks that BOA’s stock will double over the next year and triple over the next 2 years. Both of these analysts cannot be correct So who is right?
Noted analyst Dick Bove stated that Bank of America’s can earn $3 per share in a normalized earnings environment. I believe that Bove is correct with his assessment of the earnings power of Bank of America. Bank of America now owns the largest mortgage provider in Countrywide and one of the premier brokerage firms in Merrill Lynch. These brands should generate significant revenue when the economy rebounds. But I do think that Bove’s timing may be off. The key question is when will Bank of America operate in a normalized earnings environment?
I think it will take much longer then a year or two for Bank of America to see normalized earnings. The economy has not yet bottomed and Bank of America is still facing issues with rising credit card loan delinquencies and mortgage foreclosures. The banking giant may face an additional $50 billion in losses over the next few years. B of A also still has to repay $45 billion in TARP commitments. As much of B of A says that it wants to pay back the TARP money as soon as possible; I think it says a lot that the bank did not repay the money when other financial institutions did. Bank of America’s 33 billion dollar equity offering will dilute earnings for the foreseeable future.
While I don’t believe that Bank of America will languish in the single digits for years; I do think that the stock will take longer then 2 years to realize the price appreciation that some analysts are expecting. It appears that while analysts were way too pessimistic when it appeared that the great depression 2 was occurring; analysts are way too optimistic now that the economy has not fallen off a cliff.
I bought B of A (BAC) back when it was still $5 per share. It was pretty scary because a lot of banks going bankrupt at the time. Now, I am very happy with the purchase and wish I had of bought more shares.
I am looking for a $30 target for this stock and I agree that it will take a couple of years for a solid rebound. This stock used to trade for $50 before the addition of Countrywide and Merrill Lynch.
Your assesment of Countrywide and Merrill is spot on. These are the blue-chip companies in their market segments and they will become very valuable, now that they aren’t being run like a slot machine and a piggy bank.
@Bret
I wish I had loaded up on Bank of America when it was in the $2 range but I was concerned that the bank would be nationalized. I bought some in the 5’s as well but not at $2.83.
Hindsight is always 20/20. Everyone wishes that they loaded up with Bank of America stocks when it was still $2/share. However, at that time, everything was so unpredictable and it was prudent to play it safe.
@Joe
Good point.