After Q2 EPS Beat, Is Bank Of America Underappreciated?

Dustin Blitchok

Tue, Jul 18, 2017, 10:27 AM

After Bank of America Corp (NYSE: BAC) reported second-quarter earnings of 46 per share Tuesday against estimates of 43 cents, Buckingham Research said the stock isn’t fully valued yet.

Buckingham maintained a Buy on Bank of America's stock with a $30 price target.

Bank of America is trading at 10 1/2 times its projected 2018 EPS, analyst James Mitchell said in an note.

“We don’t believe the market is fully appreciating its above average asset sensitivity via material mix shift in deposits and potentially lower deposit betas this cycle, as well as its significant expense flexibility beyond its $53 billion expense target for next year,” Mitchell said.

The bank’s Q2 results include a $103 million after-tax gain tied to the sale of Bank of America’s non-U.S. consumer credit card business, according to Buckingham.

“Excluding the gain, revenue was nearly 2 percent above our forecast, with upside across most areas, particularly in i-banking and trading,” Mitchell said.

View more earnings on BAC

The bank’s net interest income fell slightly below Buckingham’s forecast, which Mitchell attributes to lower trading-related NII.

The stock’s upside was partially offset by core expenses that came in slightly above forecasts and a higher tax rate, according to the research firm.

The analyst described Q2 as a solid one for Bank of America, with consumer momentum, “solid corporate results, improving credit costs and expense progress all reinforcing our favorable view of the stock and our above-consensus estimates for next year.”

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