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Analyst Blog

On Aug 22, 2014, we issued an updated research report on Bank of America Corporation (BAC - Analyst Report). BofA has finally resolved all the actual and probable civil mortgage claims. The company announced a $16.65-billion settlement deal with the U.S. Department of Justice, a few other regulators and Attorneys General of six states.

Though the settlement amount would hurt BofA’s third-quarter 2014 results, it presently removed a huge litigation overhang. We believe that this would allow BofA to focus on its revenue growth. The company has been facing continued pressure on top line owing to a still low interest rate environment and several regulatory restrictions on fee income. Further, low client activity has been also hurting the revenues.

At the same time, BofA continues to align its banking center network according to its customer needs. The company, while continuing to close/sell branches in markets where growth potential does not meet its criteria, is expanding in markets with strong growth potential. This strategy would also aid in augmenting the bank’s top-line growth.

However, on the flip side, BofA, like other Wall Street biggies, continue to face an increasing number of new regulations. Such changes will likely have a significant impact on the bank’s performance. Also, stricter capital requirement is expected to partially reduce the company’s flexibility with respect to business investments in the medium term.

Over the last 30 days, analysts have been more or less neutral on BofA. For 2014, the Zacks Consensus Estimate declined by a penny to 79 cents per share, while for 2015 it remained stable at $1.51 per share.

BofA presently has a Zacks Rank #3 (Hold).

Stocks That Warrant a Look

Some better-ranked banking stocks include City National Corporation (CYN - Snapshot Report), BofI Holding, Inc. (BOFI - Snapshot Report) and Farmers Capital Bank Corporation (FFKT - Snapshot Report). All these stocks carry a Zacks Rank #2 (Buy).

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