Analyst: Bank of America stock has rallied as much as it could for now

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on Feb 9, 2023
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  • KBW analyst downgraded Bank of America to underperform today.
  • David Konrad says BAC does not deserve the current premium.
  • Bank of America stock has gained more than 10% since mid-Dec.

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Bank of America Corp (NYSE: BAC) has been in an uptrend over the past two months but the stock is now out of any further room to the upside, says David Konrad of Keefe, Bruyette & Woods (KBW).

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Bank of America stock has downside to $33

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On Thursday, Konrad downgraded the bank stock to “underperform” and lowered his price target to $33. In comparison, the multinational is currently exchanging hands at $35 and change.

Following the recent rally, he sees the Bank of America stock trading at an undeserved premium relative to its peers. His research note reads:

Valuation looks rich, trading at a 5.0% premium to JPM on pre-provision net revenue (PPNR) despite lower expected returns and a 16% premium to super-regional banks on P/E compared to a historical 6.0% discount.

Konrad now expects the investment bank to earn $3.35 a share in 2024 – about 12% below consensus.

Why else is he dovish on Bank of America?

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In January, financial services behemoth cited tailwinds related to higher interest rates and reported better-than-expected results for its fourth quarter.

Still, Konrad fixated on the fact that the Bank of America stock is now trading above its historical PE multiple.

Current premium valuation is expensive for an environment that may face more revenue risk than a severe credit downturn. Growth is major concern as BAC has lost share in capital markets and is risk-averse in its loan portfolio.

Last week, the U.S. Federal Reserve switched to a narrower 25 basis points increase in interest rates (find out more) suggesting it’s now closer to the end of its rate hike cycle.

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