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BofA Reaffirmed at Neutral

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On Sep 3, 2013, we reaffirmed our long-term recommendation on Bank of America Corporation (BAC - Free Report) at Neutral. This was based on BofA’s strong second-quarter earnings, which outpaced the Zacks Consensus Estimate. However, continued pressure on the top line and a low interest rate environment remain causes of concern.

Why Neutral?

BofA’s second-quarter earnings of 32 cents per share beat the Zacks Consensus Estimate by 28%. Results benefited from a fall in operating expenses and a slowdown in provision for credit losses. Though the top line improved year over year, it was not a major driving factor.

Further, BofA remains on track to save approximately $1.5 billion in cost per quarter as a result of the successful implementation of its efficiency initiative – Project New BAC. Moreover, the company continues to align its banking center network according to the customers’ needs by consolidating its branch network.

The Zacks Consensus Estimate for 2013 increased by a penny to 91 cents per share over the last 60 days. Additionally, for 2014, the Zacks Consensus Estimate advanced 2.3% to $1.35 per share in the same time period. Hence, BofA now has a Zacks Rank #3 (Hold).

However, BofA’s increased cost structure remains a cause of concern. Moreover, we are concerned about the company’s top-line growth, which continues to be impacted by the low rate environment and sluggish economic recovery. Also, the financial reform law is expected to have a long-standing effect on BofA’s profitability by resulting in higher costs, fee reductions and restrictions.

Other Major Banks Worth Considering

Some better performing banks include BankUnited, Inc. (BKU - Free Report) , Wells Fargo & Company (WFC - Free Report) and M&T Bank Corporation (MTB - Free Report) . While BankUnited carries a Zacks Rank #1 (Strong Buy), Wells Fargo and M&T Bank both have a Zacks Rank #2 (Buy).

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