The share rating of Bank of America Corp. (NYSE:BAC) has been upgraded to "market perform" by Keefe, Bruyette & Woods (KBW) in response to a decrease in bond yields and a recent market rally. This adjustment comes as the 10-year Treasury yields have fallen to around 4.5%, which is seen as favorable for BAC's stock, despite its recent 0.79% decline.
In late September, the yield on the 10-year Treasury had risen to a 16-year high of over 5%, but it then dropped following the release of a disappointing jobs report and an encouraging productivity report. This change in yield has significant implications for BAC due to an 85% correlation between its share price and 10-year bonds, largely attributed to its held-to-maturity balance sheet portfolio.
KBW has consequently increased its price target for BAC from $29 to $30. Although challenging net interest income (NII) results are anticipated in the coming quarters, KBW predicts modest growth by 2025 as debt costs reduce.
In addition to these adjustments, KBW has provided conservative estimates for BAC's stock buybacks, considering potential increases in capital buffers resulting from upcoming Federal Reserve stress tests. This analysis suggests that while near-term challenges may persist, there are positive indicators for Bank of America's longer-term performance.
InvestingPro Insights
Drawing from real-time data and insights from InvestingPro, the financial health of Bank of America Corp. (NYSE:BAC) can be further analyzed. BAC has shown promising signs of growth, with its revenue growth accelerating and a significant return over the last week. These are comforting signs for investors, especially in light of the recent market rally.
InvestingPro Tips also highlight that BAC has a history of rewarding its shareholders, having raised its dividend for 10 consecutive years. This, coupled with the fact that it's trading at a low P/E ratio relative to near-term earnings growth, makes it an attractive prospect for value investors.
InvestingPro's real-time data reinforces this positive outlook. As of Q3 2023, BAC had a market cap of $222.3 billion and a P/E ratio of 7.8. The company also reported a revenue growth of 5.74% over the last twelve months as of Q3 2023, further emphasizing its growth potential.
For those interested in more comprehensive insights, InvestingPro offers a host of additional tips and real-time data metrics for BAC and other companies. These insights can prove invaluable in making informed investment decisions.
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