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Bank of America Stock Climbed 50% Last Year. Why Its Surge Can Continue.

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Bank of America stock has more room to rise, according to Piper Sandler analysts, who say it’s “the large-cap bank stock to own for 2022.”
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Bank of America stock has had an incredible run, surging 47% in 2021 compared with a 27% rise in the S&P 500 index. Analysts see room for even more gains this year.

In a note Tuesday, the analyst team at Piper Sandler defended a decision to make Bank of America (ticker: BAC) its top stock pick for 2022. They even doubled down on their pick by raising the price target on the stock to $57 from $54. Bank of America stock recently traded around $49 apiece, after climbing 10% so far this year.

Analysts are bullish on shares because among the big banks Bank of America is one of the most sensitive to interest-rate hikes. With it widely expected that the Fed will raise interest rates at least three times this year, Bank of America would be poised to benefit more than peers.

Even though projected interest-rate increases have been known for some time, the Piper Sandler team doesn’t think the rate hikes are fully priced into Bank of America stock—especially when accounting for additional rate hikes expected in 2023. Wall Street consensus expects that higher interest rates will add $5 billion to Bank of America’s net interest income by the end of 2023. But by then, there could be as many as six rate hikes, according to the Fed’s dot plot. Meanwhile, Bank of America has estimated that an instantaneous 100 basis-point increase—which would be equivalent to roughly four hikes—would improve net interest income by $7.6 billion over 12 months, implying that the analyst consensus is coming up short, according to the Piper Sandler team.

But interest rates are only part of the story. Capital-markets activity will also boost shares this year—though, perhaps not at the record levels seen in 2021. Investment banking and trading accounted for roughly 27% of Bank of America’s revenue in the first three quarters of 2021, up from 20% in 2019. Many expect that there will be a slowdown in activity compared with last year but dealmaking should still be higher than pre-pandemic levels. Given Bank of America’s top-five spot in capital-markets activity when accounting for market share, the bank will be poised well for any continuation of dealmaking trends.

“We continue to believe that BAC is the large-cap bank stock to own for 2022,” Jeffrey Harte, managing director at Piper Sandler, wrote.

Investors will hear more from Bank of America when the bank reports fourth-quarter results on Wednesday, Jan 19.

Write to Carleton English at carleton.english@dowjones.com

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