Bank of America: Financial Winner
The broad indexes all gained at least 0.7%, ending a five-day losing streak. Spanish 10-year bond yields settled on Wednesday at 5.86%, after spiking to 5.94% on Tuesday, shedding light on investors' continued fears over Europe.
Credit Suisse analyst Andrew Garthwaite said early on Wednesday that "private sector leverage in Spain is 230% of GDP and has so far fallen by just 9% of GDP and we would expect it to fall by another 40% of GDP."
Garthwaite added that, with private sector leverage declining, Spain's "government debt to GDP of 70% could easily end up at 100%," and that fiscal tightening of 4-5% is "unlikely to occur until May at the earliest, suggesting a delayed hit."
Still, Credit Suisse said "there is a clear political commitment to tackle the deficit, reform and deleverage the private sector," in Spain, which "will ultimately make it politically feasible for core Europe to support" the country.
Back home, the Federal Reserve published its Beige Book report, saying the feedback from its twelve district banks "on balance suggest(s) ongoing improvement in economic conditions in recent months, with most Districts highlighting more favorable conditions than identified in reports from the late spring through early fall."
The KBW Bank Index (I:BKX) rose 2.1% to close at 47.80.
Meantime, Bank of America's shares have now returned 60% year-to-date, following a 58% decline during 2011.
The shares trade for just 0.7 times the company's reported Dec. 30 tangible book value of $12.95, and for eight times the consensus 2013 earnings estimate of $1.06 a share, among analysts polled by Thomson Reuters .
Guggenheim Securities analyst Marty Mosby on Wednesday raised his rating for Bank of America to buy from neutral, while maintaining his price target of $11. He cited valuation as the main motivator for the upgrade, saying that the shares "have traded down 15%, since peaking at $10 following the company's successful result from the Federal Reserve's annual stress tests in March, creating 29% upside potential to our price target, which we believe, even with BAC's heightened risk profile, justifies a buy rating."
Bank of America is scheduled to report its first-quarter results on April 19. The consensus first-quarter estimate is for earnings of 12 cents a share. Mosby is out in front of the consensus, estimating the bank will post a profit of 20 cents a share in the March quarter.
Mosby's $11 price target for Bank of America "is based on taking BAC's projected year-end 2013 tangible book value per share of $15 and netting out our worst-case loss expectation of $70 billion, or $4 unfavorable impact to tangible book value (75% of the recent Fed Stress Test losses)."