On Tuesday, Bank of America Corp (NYSE:BAC) received an upgrade in its stock rating from CFRA. The firm moved its assessment from "Sell" to "Hold," maintaining a price target of $39.00 for the financial institution's shares. The revision comes after a period of underperformance, with Bank of America shares having declined approximately 16% from their mid-July highs, a level that CFRA now considers below their fair value estimate.
CFRA has based its price target on a forward price-to-earnings (P/E) ratio of 11.5 times, which aligns with the three-year historical average for the bank. Despite the upgrade, CFRA anticipates that Bank of America will continue to underperform compared to its direct peers in the banking sector. This outlook is influenced by the slowdown in traditional consumer banking segments such as credit cards, auto loans, mortgages, and personal loans, as evidenced by the bank's performance in the first half of 2024.
Bank of America's financial results have shown no growth in loans and deposits over the last two quarters. Moreover, net interest income, which accounts for over 54% of the bank's total net revenue, has experienced a decline in the first half of the year. Additionally, the bank's credit card income has been on a downward trend since late 2023. CFRA suggests that the American middle class is facing financial pressure due to inflation and rising living costs, which could be contributing to these challenges.
The bank's investment banking division, particularly its mergers and acquisitions (M&A) services, has also not performed as well as those of larger peers. In the second quarter, Bank of America reported a 3.3% year-over-year decrease in M&A activity, while its competitors saw double-digit growth. Despite these concerns, CFRA does not view credit loan exposure as a significant risk for the bank, as they believe potential loan losses have been adequately reserved for.
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