Bank of America upgraded to market perform at KBW because ‘the fever broke’ around bond yields

“The fever broke,” Konrad said in a research note published on Sunday. “We believe the lower rates may drive favorable positioning in [Bank of America] stock, and we believe the stock’s valuation is more attractive.”

The yield on the 10-year Treasury hit a 16-year high of more than 5% late in September, but fell after cooler monthly jobs data were published last week. Konrad also cited a better-than-expected productivity report for the drop in yields.

KBW boosted its price target on Bank of America by $1 to $30 a share.

Bank of America’s stock has had an 85% correlation with 10-year bonds, largely due to its exposure to bonds in its held-to-maturity balance sheet portfolio, Konrad said.

“Although we expect challenging NII [net interest income] results over the next two quarters, we believe NII will level out in 2024 and show modest growth in 2025, partly due to less pressure on debt costs,” Konrad said.

Looking ahead, Konrad has more “conservative” projection than other analysts for stock buybacks due to the possibility of increased capital buffers in next year’s Fed stress tests of banks.

KBW is currently expecting $2.4 billion in Bank of America stock buybacks in 2024, below the consensus estimate of $8.8 billion. For 2025, KBW is forecasting $2.6 billion in Bank of America stock buybacks, well below the $11.6 billion consensus view.

Bank of America’s stock is down 1.9% on Wednesday. The stock has fallen 15.5% so far in 2023, compared to a 14% year-to-date gain by the S&P 500
SPX.

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