On Tuesday, CFRA downgraded shares of Bank of America (NYSE:BAC) from Hold to Sell, while slightly increasing the price target to $39 from $38. The firm's revised target is based on an 11.5x forward P/E of their 2025 earnings estimate, which aligns with the company's three-year historical average and is above the peer average of 10.3x.
The downgrade comes after Bank of America reported a second consecutive quarter of stagnant deposit and loan growth, and a 3% decline in net interest income (NII) in the second quarter of 2024. CFRA also adjusted its 2024 earnings per share (EPS) estimate down by $0.02 to $3.23 and maintained its 2025 EPS estimate at $3.40, which falls below the consensus estimate of $3.55.
Despite a slight year-over-year increase in total revenue by 0.1%, there was a 1.7% quarter-over-quarter decrease. The rise in noninterest income by 5.7% was counteracted by a drop in NII, which the bank anticipates will recover and stabilize in the second half of 2024.
Consumer revenue saw a 3% decline year-over-year with flat credit card income. In contrast, the Global Banking segment reported a 16% year-over-year increase in investment banking fees, but business lending and global transaction services experienced declines of 5% and 12%, respectively.
The Global Wealth & Investment Management division achieved a 6% growth year-over-year, despite a 6% decrease in NII. The total assets under management (AUM) reached $1.8 trillion, marking a 13% increase, with net client flows adding $35.4 billion. However, net interest margins fell to 1.93% from the previous 2.06%.
CFRA anticipates that both NII, which accounts for 54% of the bank's total revenue, and loan growth will remain subdued moving forward.
In other recent news, major Wall Street banks, including Bank of America, Morgan Stanley (NYSE:MS), and Goldman Sachs (NYSE:GS), have reported robust growth in equity trading revenues. Bank of America saw a 20% increase in equities trading revenue, reaching $1.9 billion, while Morgan Stanley and Goldman Sachs reported an 18% and 7% surge respectively. These recent developments reflect a strong performance in equity trading amid global economic complexities.
Bank of America also reported better-than-expected quarterly profits, despite a decrease in net interest income (NII) and an increase in provisions for potential credit losses. The bank's resilience was attributed to the combined strength of its consumer banking, global markets, global banking, and wealth management businesses. Analyst Stephen Biggar from Argus Research noted that the bank's NII is expected to bottom out in the fourth quarter, aligning with previous indications.
Meanwhile, Piper Sandler upgraded Bank of America's shares rating from Underweight to Neutral, reflecting a more favorable outlook for the bank's performance. The upgrade was influenced by expectations that Bank of America's NII is projected to reach its lowest point in the second quarter of 2024 and then start to increase for an extended period.
In other company news, UnitedHealth Group (NYSE:UNH) reported a second-quarter profit that surpassed expectations, despite anticipating a larger impact on its annual profit from a cyberattack earlier in the year. Match Group (NASDAQ:MTCH), the parent company of Tinder, saw its shares rise amid reports of activist investor Starboard acquiring a significant stake in the company.
These are the highlights of recent developments.
InvestingPro Insights
Bank of America's recent performance and CFRA's downgrade reflect a mix of challenges and opportunities for the bank. According to InvestingPro data, Bank of America has a market capitalization of $343.31 billion and a price-to-earnings (P/E) ratio that has adjusted to 14.75 in the last twelve months as of Q1 2024.
Despite a slight decline in revenue growth over the same period, the company has demonstrated a strong return with a 21.52% total return over the last three months and an impressive 48.19% over the past year, indicating a robust recovery trajectory.
InvestingPro Tips highlight that Bank of America has maintained dividend payments for 54 consecutive years and has raised its dividend for 10 consecutive years, showcasing its commitment to shareholder returns. Moreover, the bank is trading near its 52-week high, which suggests investor confidence in its market position as a prominent player in the banking industry.
For investors seeking more in-depth analysis and additional insights, InvestingPro offers further tips on Bank of America's financial health and future outlook. Utilize coupon code PRONEWS24 to get up to 10% off a yearly Pro and a yearly or biyearly Pro+ subscription, and discover the 9 additional tips available to help inform your investment decisions.
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