UBS Upgrades Bank of America to Buy, Boosts Price Target
Tuesday, Jan 7, 2025 5:17 pm ET
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UBS analyst Erika Najarian has upgraded Bank of America (BAC) to 'buy' from 'neutral' and lifted her 12-month price target to $53 a share from $43 a share. Najarian believes that BAC has been overlooked in the post-election landscape of deregulation and higher for longer interest rates, presenting an opportunity for investors. She noted that BAC's wide discount to peers like JPMorgan Chase & Co. (JPM) and Wells Fargo & Co. (WFC) appears unjustified, given its potential for sequential growth in net interest income in the fourth quarter. Najarian also pointed out that BAC's bottom line may benefit more than other banks from a lighter regulatory regime, following the departure of Michael Barr, the Federal Reserve's vice chair of supervision, and the shelving of the Basel III endgame proposal. Additionally, Najarian expects BAC to buy back as much as $18 billion in stock, which would boost its share price. The improved capital markets and deal-making environment for banks will also provide a tailwind for the stock.

Bank of America's stock has risen 5% in 2025, outpacing the S&P 500's 4.5% gain. Najarian's upgrade and increased price target suggest that the bank's recent performance and market trends align with her bullish outlook. BAC's projected sequential growth in net interest income in the fourth quarter is "very achievable," according to Najarian. This projection of sequential growth in net interest income is significant because it suggests that BAC's earnings potential may be underestimated by the market. If BAC can indeed achieve this growth, it could lead to a re-evaluation of the bank's earnings power and potentially drive the stock price higher.
A lighter regulatory regime, following the departure of Michael Barr and the revised Basel III proposal, could benefit Bank of America's bottom line in several ways. Erika Najarian, an analyst at UBS, believes that the bank's earnings per share (EPS) power could increase due to higher interest rates for longer, which would boost net interest income (NII). This is because Bank of America has a significant portion of its assets in interest-earning securities, and higher interest rates would increase the income generated from these assets. Additionally, a lighter regulatory regime could allow the bank to engage in more risk-taking activities, potentially leading to higher returns on investments. However, it is important to note that increased risk-taking could also lead to higher losses if the investments do not perform as expected. In terms of long-term growth prospects, a lighter regulatory regime could allow Bank of America to expand its business and invest in new areas, potentially leading to increased revenue and earnings. However, it is important for the bank to manage its risks effectively to ensure that it can continue to grow and prosper in the long term.

Bank of America's potential stock buyback of up to $18 billion could significantly boost its share price and overall valuation. Erika Najarian, an analyst at UBS, estimates that such a move could increase the stock price by about 20% in 2025. This is because buybacks reduce the number of outstanding shares, which increases earnings per share (EPS) and can drive up the stock price. Najarian notes that Bank of America could buy back as much as $18 billion in stock, which would boost its share price. However, there are potential risks and benefits to consider. On the one hand, buybacks can signal to investors that the company's management believes the stock is undervalued, which can attract more investors and increase demand for the stock. On the other hand, buybacks can also be seen as a way for management to enrich themselves at the expense of long-term shareholders, as they may be using company funds to buy back stock at inflated prices. Additionally, buybacks can reduce the company's cash on hand, which could limit its ability to invest in growth opportunities or weather economic downturns. In conclusion, while a stock buyback of up to $18 billion could potentially boost Bank of America's share price and overall valuation, it is important for investors to consider the potential risks and benefits of such a move.