Bank of America Downgraded Ahead of Earnings: What to Know

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Global financial services firm UBS downgraded Bank of America (BAC) stock to Neutral (the equivalent of Hold) from Buy this week because it thinks the bank stock has limited upside over the next 12 months. Still, analysts raised their price target on BAC to $40 from $39.

Bank of America has shown "strong deposit growth, a reawakened investment banking and markets business and the prospect for accelerated buybacks," UBS said in its report, but this is "now fairly reflected in market multiples" with the stock in the high-$30s.

"While we continue to view BAC as a high quality stock and a beneficiary from higher interest rates, the stock currently trades at 12 times our 2025 earnings per share estimate, which is in-line with our target multiple and above the company's 11 times 10-year average,” UBS said.

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"As the market has shifted its stance towards expectations for a more gradual easing of interest rates (now expecting three cuts vs six in January), we think BAC's favorable asset sensitivity relative to peers has been reflected in the stock's performance and is now fully priced in," the analysts added.

The new price target of $40 by UBS implies an upside of about 8% from BAC's current stock price.

Bank of America is one of the world’s largest banks and the second-largest in the U.S. with total assets of more than $3 trillion and deposits of nearly $2 trillion.

CFRA is positive on bank earnings

CFRA Research analyst Kenneth Leon released a report ahead of first-quarter earnings for global U.S. banks, saying that they are "likely to see a sequential improvement in March versus December results, but year-over-year comparisons are likely to be flat to lower."

Leon notes that higher interest rates have benefitted net interest income of global U.S. banks and a "healthy U.S. economy" has been positive for loan volume growth.

The analyst concluded that JPMorgan Chase (JPM), Goldman Sachs (GS) and Morgan Stanley (MS) have the best chances to deliver better-than-expected results in the first quarter of 2024, but he's also positive on Citigroup (C) and Bank of America.

Q1 earnings season unofficially kicks off next Friday, April 12, with several big banks including JPMorgan reporting. Bank of America, meanwhile, hits the earnings calendar ahead of the April 16 open.

Analysts, on average, expect Bank of America to disclose first-quarter earnings of 71 cents per share, down 24.5% year-over-year. Revenue is forecast to fall 11% to $23.5 billion.

Joey Solitro is a freelance financial journalist at Kiplinger with more than a decade of experience. A longtime equity analyst, Joey has covered a range of industries for media outlets including The Motley Fool, Seeking Alpha, Market Realist, and TipRanks. Joey holds a bachelor's degree in business administration.