Royal Bank Lowers Bank of America Target Price 10% Amid Economic Uncertainty

Canada's Royal Bank has lowered its target price for Bank of America (BAC.US) from $50 to $45, reflecting a cautious stance on the bank's near-term performance amidst growing economic uncertainty. However, the bank remains optimistic about the long-term prospects of Bank of America, citing its strong first-quarter financial results and strategic initiatives.

Bank of America recently reported its first-quarter earnings, which exceeded analyst expectations. The bank achieved revenue of $27.4 billion, a 6% increase year-over-year, and net income of $7.4 billion, up 10% from the previous year. Diluted earnings per share stood at $0.90, compared to $0.76 in the same period last year. These results underscore Bank of America's resilience in the face of macroeconomic challenges.

Royal Bank of Canada noted that Bank of America's efforts to boost deposits and loans are likely to enhance its profitability over the long term. The bank's low-cost deposit base was also highlighted as a significant advantage, providing a stable foundation for future growth. Despite the target price reduction, Royal Bank of Canada's outlook on Bank of America remains positive, emphasizing the bank's strategic initiatives and strong financial performance.

Analysts, on average, expect Bank of America's earnings per share to grow from $3.21 in 2024 to $3.64 in 2025, and further to $4.26 in 2026. This growth trajectory, coupled with Bank of America's robust financial performance and strategic initiatives, suggests that the bank is well-positioned to navigate potential economic headwinds and maintain its profitability.

Royal Bank of Canada's adjustment to the target price also reflects confidence in Bank of America's ability to maintain its profitability during a potential economic downturn. The bank's proactive risk management measures, implemented in the aftermath of the financial crisis, are expected to mitigate potential risks and support its long-term growth prospects.