Why Bank of America Corp Shares Could Fly 15%

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

Brian D. Pacampara, CFA
Brian D. Pacampara, CFA
Jul 2, 2014 at 9:54PM

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 analyst upgrades and downgrades -- just in case their reasoning behind the call makes sense.

What: Shares of Bank of America (NYSE:BAC) gained 1.6% today after Deutsche Bank upgraded the banking gorilla from hold to buy.

So what: Along with the upgrade, analyst Matt O'Connor boosted his price target to $18 (from $16.50), representing about 15% worth of upside to yesterday's close. So while momentum traders might be turned off by Bank of America's price weakness in recent months, O'Connor's call could reflect a sense on Wall Street that the concerns surrounding its growth trajectory are becoming overblown.

Now what: According to Deutsche, Bank of America's risk/reward trade-off is rather attractive at this point. "We think the most meaningful negative catalysts have been identified and largely priced in," said O'Connor. "From here, Bank of America is well-levered to a potential pickup in capital markets revenues, higher interest rates, and an improving US economy." When you couple that upbeat outlook with Bank of America's cheapish price-to-book of 0.8, it's tough to disagree with Deutsche's bullishness.