Nomura likes BofA and Citi as it starts coverage

"Multi-year capital/cost initiatives have prepared Bank of America (BAC) for a tougher capital regime, and its strong position supports meaningfully higher payouts vs. peers, in our view," says analyst Steven Chubak, initiating coverage with a Buy and $19 price target.

"BAC's current business mix, improving efficiency, and higher rate sensitivity should support ~15% mid-cycle returns (on required capital) by 2016. Legal costs should remain elevated, but analysis suggests BAC is only moderately under-reserved for remaining Private Label exposure. Long-term ROE potential of ~15% supports PT of $19, or 14% potential upside."

"We see unparalleled ROE potential at Citigroup (C) under the new capital rules, as Citicorp efficiency targets are realized by 2015 and Citi Holdings turns profitable," he says, starting the bank at a Buy with $70 price target.

"We also see significant excess capital generation/best-in-class payout potential as the drag from Holdings moderates and DTA utilization accelerates. The above trends support through-the-cycle ROE potential of 15% and payout ratios >100%, which are not properly reflected in the shares, in our view."

BAC +0.5%, C +0.4% premarket

See also: Nomura launches JPM and MS at Neutral

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Comments (7)
  • DeepValueLover
    , contributor
    Comments (11220) | Send Message
    These price targets will ultimately prove to be way, WAY too low.
    9 Jan 2014, 08:01 AM Reply Like
  • herschfields
    , contributor
    Comments (132) | Send Message
    Do you have any supporting data concerning your comment and/or, what are your targets.


    9 Jan 2014, 11:05 AM Reply Like
  • Jason B
    , contributor
    Comments (597) | Send Message
    9 Jan 2014, 01:54 PM Reply Like
  • DeepValueLover
    , contributor
    Comments (11220) | Send Message
    I project 2014 ROA of about $20 billion with free cash flow coming in @ around $8.23 billion per quarter.


    Earnings growth forecast:


    2014: 47.50%
    2015: 20.72%


    SInce reserving is more than adequate and litigation exposure continues to shrink I'd expect a marked ramp up in returns of capital this year.


    Citi won't grow earnings as fast as BAC:


    2014: 15.79%
    2015: 11.39%


    But C has a PEG ratio of only 0.20 and 30% (Y-o-Y) top line revenue growth


    Both companies will see heavy demand from large cap dividend funds once they get their dividend thresholds above 1% later this year.
    9 Jan 2014, 05:51 PM Reply Like
  • dictionshunary
    , contributor
    Comments (746) | Send Message
    I agree they are too low. BAC and it's stock price are waiting for a needed change in DC to a POTUS that has at least a basic understanding of something other than community organizing and pitting people against each other.
    9 Jan 2014, 05:03 PM Reply Like
  • Just_woodman
    , contributor
    Comments (39) | Send Message
    Dictionshunary, I,d be careful making statements like that on SeekingAlpha. seems there is a liberal editor here that removes postings like that. Had it done to me 2 days ago for saying something a little to the Right that upset them.
    I an in hope that this these predictions on BAC are on target. Holding on since $5.13 and don't yet see any reason to get out, or even start taking profits till maybe December this year. All depends on their legal hammering in pending judge's decision, and if it's tossed out, BAC will hit the stars
    10 Jan 2014, 09:18 AM Reply Like
  • flounderella
    , contributor
    Comment (1) | Send Message
    Nomura seems to be living under a rock. Payout ratios >100% will never be allowed by regulators
    11 Jan 2014, 01:21 PM Reply Like
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