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Analyst Blog

On Mar 11, 2013, we reiterated our long-term recommendation on Bank of America Corporation (BAC - Analyst Report) at Neutral. This reflects BofA’s fourth-quarter results, which were marginally ahead of the Zacks Consensus Estimate.

Why Neutral?

BofA’s fourth-quarter earnings of 3 cents per share beat the Zacks Consensus Estimate by a penny. Better-than-expected results were primarily driven by significant slowdown in provision for credit losses and a decline in operating expenses, partly offset by lower top-line growth.

Following the fourth-quarter results, the Zacks Consensus Estimate for 2013 has remained stable at $1.00 per share over the last 60 days. The Zacks Consensus Estimate for 2014 advanced 3.1% to $1.31 per share, in the same time frame. Hence, BofA now has a Zacks Rank #3 (Hold).

BofA remains focused on maintaining steady capital levels. This is further evident from the clearance of the 2013 stress test. Further, BofA has been relentlessly trying to realign its balance sheet in accordance with the regulatory changes post the meltdown to remain afloat. All these initiatives are expected to go a long way in improving the company’s financials in the subsequent quarters.

Yet, BofA’s elevated cost structure remains a cause of concern. Moreover, the company still faces numerous litigations pertaining to Countrywide Financial, which are expected to have a material impact on its financial stability going forward. We are also concerned about the company’s top-line growth, which continue to be impacted by the low rate environment and sluggish economic recovery.

Other Major Banks Worth Considering

While we prefer BofA, other major banks worth a look include BankUnited, Inc. (BKU - Analyst Report), Comerica Incorporated (CMA - Analyst Report) and State Street Corporation (STT - Analyst Report). While the first stock carry a Zacks Rank #1 (Strong Buy), other two retain a Zacks Rank #2 (Buy).

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