Bank of America: Downgrade Loser
NEW YORK (TheStreet) -- Bank of America (BAC) was the loser among the largest U.S. financial names on Friday, with shares sliding 5% to close at $8.36.
The broad indexes ended the week mixed, after several industrial giants reported their first-quarter earnings results, including General Electric (GE) , with first-quarter earnings of 34 cents a share beating the consensus estimate among analysts polled by Thomson Reuters, by a penny. GE's first-quarter revenue of $35.2 billion beat the consensus estimate of $34.7 billion.
The KBW Bank Index (I:BKX) declined 1% to close at 47.56, with the 24 index components roughly split between winners and losers.
Even though four analysts raised their price targets for Bank of America on Thursday, the shares dipped after CLSA analyst Mike Mayo downgraded his rating for BAC to a "Sell" from "Underperform" with an $8 price target.
Mayo justified the downgrade "given our ongoing view that the firm's earnings power is declining and its uncertain ability to significantly reduce expenses without damaging the franchise," projecting that the company's profits in 2013 -- before provisions for loan losses and taxes "will not even be half of legacy Bank of America much less pro forma BAC/Merrill, necessitating bolder action," including further asset sales.
The analyst added that "given the level of capital destruction, we feel that the stock warrants a hefty discount and, in any event, seems expensive on a PE basis given estimated core EPS in 1Q12 of $0.14."
May estimates that Bank of America will earn 65 cents a share this year, followed by 2013 EPS of 95 cents.
Bank of Americas shares have now returned 51% year-to-date, following a 58% decline during 2011.
The shares trade for just 0.7 times their reported March 31 tangible book value of $12.87, and for eight times the consensus 2013 earnings estimate of $1.06 a share. The consensus 2012 EPS estimate is 71 cents.
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-- Written by Philip van Doorn in Jupiter, Fla.
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