Bank of America (BAC) is one of the biggest financial stocks on Wall Street. And though financial regulatory reform is the order of the day, both on Wall Street and on Capitol Hill, there are plenty of reasons that Bank of America and BAC stock should perform very well for investors no matter what legislators lock down in the final bill. Here are five reasons investors should consider buying BAC.
Pullback means opportunity for BACstock. Since mid-April, there’s been a decided sell-off in BAC shares to the tune of about 20%. The stock’s been taken down by the wider selling in the overall market, and most recently the selling has been ramped up by fears of overreaching financial regulation reform. That pullback in BAC shares comes without any fundamental change in the BofA’s business. When the fear subsides, smart investors buying into BAC now just may be sitting in the catbird’s seat.
Solid Bank of America earnings. In April, BofA reported first-quarter earnings that easily bested analysts’ expectations. The company said it earned 28 cents per share in the quarter, way above consensus forecasts for earnings of just 9 cents per share. Although total revenues fell 10.6% year-over-year to $31.97 billion, that number was much higher than consensus forecasts for revenue of $27.97 billion consensus. The next time we see BofA’s earnings will be July 16, and if the company does well, it could be the catalyst the stock needs to breakout.
Improving conditions in all BofA units. The outstanding first-quarter profit of $3.2 billion was BofA’s first venture into the black in three quarters. A big part of this profitability was strong investment banking numbers and operations inherited in its acquisition of securities firm Merrill Lynch. But the gains from Merrill weren’t the only areas of good news. Five of BofA’s six business units were profitable during the first quarter, and that means the company’s profit engine is nearly firing on all cylinders.
Bank of America sees improving non-performing loans. The bank’s non-performing loans, leases and foreclosed properties were $35.9 billion, just slightly higher than the $35.7 billion in the fourth quarter. However, the provision for credit losses was $9.8 billion; $305 million lower than the fourth quarter. Also, consumer credit delinquencies seem to be on the mend. Among credit-card users, the number of loans at least 30 days late declined, and that allowed BofA’s credit-card unit to earn $952 million during the quarter. Credit quality across most commercial portfolios showed signs of improvement, and net charge-offs in the commercial portfolios declined across a broad range of borrowers and industries.
Recent analyst upgrades of BAC stock. Most recently, Stifel Nicolaus raised its rating on the shares to “Buy,” but that rating increase is just one of a slew of recent positives from analysts, including upwardly revised 2010 price targets. These increased price targets were largely the result of the healthy first-quarter numbers. In addition to Stifel’s upgrade, Citibank lifted its 2010 price target to $26 from $23, and maintains a “Buy” rating on the shares. Barclays lifted its price target to $21 from $20 and maintained its “Equal Weight” rating on the shares, while UBS set a price target of $21 on the shares along with its “Buy” rating.
Once financial reform legislation passes, and once investors know what the playing field is going to look like in the banking sector, look for the bargain hunters to comeback to banks in droves. That could mean some big buying in best-of-breed financial institutions such as BofA.
