Bank of America Corp. (BAC) has received an upgrade from Keefe, Bruyette & Woods, moving up from underperform to market perform. This upgrade comes after the recent shift in the market and the drop in 10-year Treasury yields, which have had an impact on bank stocks.
According to KBW analyst David Konrad, the recent stock market rally and the decrease in 10-year Treasury yields to the 4.5% level are positive indicators for Bank of America Corp.’s stock. As of Tuesday, the yields on the 10-year bonds were hovering around 4.6%.
Konrad stated in a research note published on Sunday that “the fever broke,” referring to the decrease in bond yields. This favorable outcome is expected to drive more favorable positioning in Bank of America’s stock, making it a more attractive option for investors.
The 10-year Treasury yield reached a 16-year high of over 5% in late September but dropped due to cooler monthly jobs data and a better-than-expected productivity report. These factors influenced the decline in yields.
As a result of the upgrade, KBW has raised its price target on Bank of America’s stock by $1 to $30 per share.
The correlation between Bank of America’s stock and 10-year bonds is significant, with an 85% correlation. This is mainly due to the bank’s exposure to bonds in its held-to-maturity balance sheet portfolio.
While the next two quarters are expected to present challenges for the bank’s net interest income (NII) results, Konrad believes that NII will stabilize in 2024 and show modest growth in 2025. This is partly due to the decreased pressure on debt costs.
Looking ahead, Konrad has a more conservative projection for stock buybacks compared to other analysts. This projection is influenced by the possibility of increased capital buffers in next year’s Federal Reserve stress tests of banks.
KBW anticipates $2.4 billion in Bank of America stock buybacks in 2024, which is lower than the consensus estimate of $8.8 billion. For 2025, KBW forecasts $2.6 billion in stock buybacks, significantly below the $11.6 billion consensus view.
Bank of America’s stock was down 1.9% on Wednesday. So far in 2023, the stock has experienced a decline of 15.5%, whereas the S&P 500 has seen a year-to-date gain of 14%.
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