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Why Bank of America Corp Will Keep Climbing

By Brian Pacampara – Jan 9, 2014 at 10:09AM

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Does this analyst make a good case? Or is it just more noise from Wall Street?

While Fools should generally take the opinion of Wall Street with a grain of salt, it's not a bad idea to take a closer look at particularly stock-shaking upgrades and downgrades -- just in case their reasoning behind the call makes sense.

What: Shares of Bank of America Corp (BAC -1.29%) gained slightly this morning after Nomura Securities initiated coverage on the banking gorilla with a buy rating.

So what: Along with the bullish rating, analyst Steven Chubak planted a price target of $19 on the stock, representing about 15% worth of upside to yesterday's close. While value investors might be turned off by Bank of America's price strength over the past year, Chubak believes there's more room to run given the company's still-improving fundamentals.

Now what: Nomura expects Bank of America to post full-year 2013 EPS of $0.89 and $1.27 for 2014. "Multi-year capital / cost initiatives have prepared BAC for a tougher capital regime, and its strong position supports meaningfully higher payouts vs. peers, in our view," Chubak noted. "BAC's current business mix, improving efficiency, and higher rate sensitivity should support [about] 15% mid-cycle returns (on required capital) by 2016."

When you couple that fundamental upside with Bank of America's still-cheapish forward P/E of 12, it's tough to disagree with Nomura's bullishness. 

Fool contributor Brian Pacampara owns shares of Bank of America. The Motley Fool recommends Bank of America. The Motley Fool owns shares of Bank of America. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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