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Evercore Continues to Hold a Bullish View on Bank of America (BAC) Stock

support@smarteranalyst.com (Ben Mahaney)

Bank of America (BAC) released second-quarter earnings earlier this week, and investors were generally satisfied with the results.

The company reported revenue of $23.2 billion for the quarter, in-line with expectations, and EPS of $0.74, beating estimates of $0.71. But one thing that may be cause for concern is its net interest margin (NIM), which is the difference between the interest it collects (through loaning money to customers) and the interest it pays (through receiving a loan). While Wall Street was expecting 2.47% — a decrease since last quarter — the results came in a worse-than-expected at 2.44%. It isn’t the end of the world, especially as long-term interest rates have been falling (which contributes to less generation of interest revenue), but it is something investors are expected to monitor moving forward.

Evercore ISI analyst Glenn Schorr doesn't seem concerned as he maintains an Outperform rating on BAC stock, with a $33 price target, which implies ~12% upside from current levels. (To watch Schorr's track record, click here)

Overall, Schorr says BofA had a “pretty good quarter with the forward look on NII (net interest income) being the only real issue to consider…” The highlights include a 200bps of operating leverage as expenses remained flat, as well as growth in loans, deposits and even NII. The report was generally not surprising — but the only real issue to consider for Schorr is the drop in NIM, which the analyst says, “will likely remain under pressure given the backdrop.” 

While Schorr believes “NII seems to be somewhat insulated thanks to the overall loan and deposit growth BofA is producing,” the analyst points out that “the margin squeeze still hurts if the forward curve proves to be right,” which also prompted BoA management to reduce NII guidance for 2019 fromo 3% to 1% y/y.  

But even with the lower expected NIM and that the “world has slowed,” Schorr believes BAC continues to grow pretty consistently. He points to the growth in loans, and deposits (which increased more than $40 billion for the 15th-straight quarter). On loans, the analyst says, “an acceleration in mortgage loan production (+56%) drove Consumer as lower rates spurred activity,” while he models for “more of the same with good growth in Cards, Small Business and Middle Markets” moving forward. 

All in all, BoA’s first quarter release painted a seemingly rosy picture, providing continued optimism for the future. TipRanks analysis of five analyst ratings shows a consensus Moderate Buy rating, with three analysts Buying and two Holding. The average price target among these analysts stand at $35.50, which represents a 21% rise from current levels. (See BAC's price targets and analyst ratings on TipRanks)

 

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