Our 12-month target price of $40 equates to
about 14.5X our 2008 operating EPS estimate, a
slight premium to peers. Our valuation is based
on our expectation of solid capital levels, BAC's
extensive geographic footprint, and our view of
its balanced business model.
Qualitative Risk Assessment
Our risk assessment reflects what we see as
strong business fundamentals and a robust
customer base.We view BAC as having a diverse
product line and geographic presence, which
should enable it to withstand a major economic
BAC permabull joeqdoe on June 22, 2008: "There will be no Dividend Cut!"
July 22, 2008 Bank of America chief Ken Lewis went even further Monday, saying BofA will maintain its 64-cent quarterly payout because it's confident of weathering the credit storm.
October 6, 2008 Bank of America Corp. reports a 68 percent drop in third-quarter earnings and has halved its dividend to 32 cents per share.
January 16, 2009 Early Friday morning, Bank of America reported a $2.39 billion fourth-quarter loss and slashed its quarterly dividend to a penny.
You may want to revise the $40 target to $24. Here's a link to an article(Business Week)from June 20. BAC is listed changed from HOLD to SELL by S&P. http://www.businessweek.com/investor/content/jun2008/pi20080620_844909.htm?chan=top+news_top+news+index_investing
Stuart Plesser, Standard and Poor's Equity Research Services
15 days ago had $40 target, now down to $24 based on increased loan losses across the BofA spectrum and the $23 Billion ARM portfolio being acquired within the $100B CFC owned portfolio.
$72 Billion difference??? Since $40-$24 = $16 Billion times 4.5 Billion outstanding shares = $72 Billion.
Personally, I would like Stuart to breakdown that $72 Billion. The credit related losses have increased slightly and there are provisions already in place for that and for future losses on the $23 Billion in ARM's though rates are low and will be for the next few years.
BofA/CFC combined owned loan balances.
Credit Card ~$70B
Home equity ~$150
So $550 Billion total in loan balance outstanding.
Say 10% or $55 Billion go to non-performing status and BofA only recovers 1/2 through modifications, collateral and insurance. Even that highly unrealistic scenario of $25 Billion losses would be less than the existing provisions ($15B + $13B positive CFC positive net equity) and leave Billions plus this quarters additional provisions...
How does Stuart Come up with extra $72 Billion difference in Market Cap?
The S&P Fair Value calculation is now way out of sync with Plessner's target....
Fair Value Calculation:
$29.70 Analysis of the stock's current worth, based on S&P's proprietary quantitative model suggests that BAC is slightly undervalued by $2.60 or 9.6%.
Seems suspect to say the least.
From your insistence that BAC will sell at least some of the CCB shares, and that Lewis' job is on the line, I have to conclude that you don't anticipate BAC will be making much money for the rest of the year. If BAC has to sell CCB shares just to keep the current dividend going, or simply to show a profit at all, then the company is in a lot of trouble and the best thing everyone can do is get out now.