Bank of America: Financial Winner
The broad indexes rallied after polls in Greece showed that a party favoring government austerity measures required for the country to meet the terms of its previously agreed bailout was in the lead for national elections scheduled for June 17. The euro earlier was trading near its two-year low, amid concerns over Greece and Spain, which saw its sovereign rating cut by Egan Jones to B from BB-minus.
Bank of America's shares have now returned 34% year-to-date, following 58% decline during 2011.
The shares trade for 0.6 time tangible book value ,according to Thomson Reuters Bank Insight, and for seven times the consensus 2013 earnings estimate of $1.03, among analysts polled by Thomson Reuters. The consensus 2012 EPS estimate is 59 cents.
When asked about JPMorgan's macro hedging activities -- in the wake of JPMorgan Chase's (JPM) $2 billion in second-quarter hedge trading losses that were disclosed on May 10 -- Bank of America CEO Brian Moynihan said atlast week's Deutsche Bank Global Financial Services Investor Conference that "we don't do the macro hedging from a corporate perspective. In other words, our commercial loan book of $200-odd billion we are very comfortable with. We have significant reserves against it," and hedge "specific larger credits in the capital markets, like we do elsewhere. "
Wells Fargo analyst Matthew Burnell rates Bank of America "Market Perform," with a valuation range for the shares of $8.00 to $9.00, which he left unchanged on Monday, while lowering valuation ranges for several other large banks.
Burnell said his valuation range for Bank of America represents a multiple of 0.6 to 0.7 times his year-end 2012 tangible book value estimate of $13 a share, with risks including "a stronger or weaker economic backdrop than expected, with a resulting effect on home prices and consumer sentiment," a "more or less constructive settlement of pending regulatory and/or political challenges than expected;" and "higher funding costs as a result of uncertain capital markets environment and/or changes to its debt ratings."
The analyst is ahead of the consensus, estimsting that Bank of America will earn 70 cents a share this year, followed by 2013 EPS of $1.15.
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