Bank of America’s Q3 Encourages Bulls

Better revenue growth, visible operating leverage and manageable credit-cost increases will drive upside.

Credit Suisse

With Bank of America’s third-quarter upside, we’re raising our full-year 2017 earnings-per-share estimate to $1.81 from $1.77; our 2018 and 2019 EPS estimates are unchanged at $2.10 and $2.30 per share, respectively. Our target price is unchanged at $31.

We continue to recommend purchase of Bank of America (ticker: BAC) shares and are that much more encouraged in prospects for outperformance given year-to-date results. Better revenue growth, visible operating leverage and manageable credit-cost increases will drive realization of franchise value.  [We rate Bank of America at Outperform.]

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BofA says two areas a life raft for investors

BofA-Merrill Lynch names two places which could keep investors in green.

Bank of America-Merrill Lynch is warning investors not to chase the rally.

Even though it’s predicting the end is near, the firm isn’t advocating a strategy which would push money to the sidelines.

“The market is trading quite elevated,” said Marc Pouey, BofA Merrill Lynch’s senior U.S. equity strategist, told CNBC’s “Futures Now” recently. “But I think underneath the surface there are quite a few opportunities out there.”

According to Pouey, there are two sectors which will likely be immune to a broader market downturn.

“Two of the glaring areas for me are financials and in health care which are both trading at a discount to the market here,” he said.

Pouey sees financials as a growth story.

“We’ve seen over 10 percent dividend growth in the space. They’re also buying back their stock very, very aggressively,” added Pouey. “They’re rewarding shareholders from that perspective.”

He made the case for health care based on the sector’s history.

“If you look back over the last three years or so, consistently — every single quarter — health care delivers top-line and bottom-line beats outside maybe a couple of quarters. They are really delivering the goods there,” said Pouey, noting that biotech is a shining area, too.

BofA’s S&P 500 Index year-end price target is 2450; that’s four percent below current levels. Pouey’s comments came as the index recorded its longest winning streak since 2013.

In a special note to CNBC, he called the environment a “sentiment driven market with the S&P 500 trading at a 17.8x forward price/earnings (PE) ratio, at cycle highs, and 1.5 multiple points above pre-election levels.”

As for market risks, the biggest issue is the lack of one.

“Near-term, there probably aren’t many risks, which is maybe the biggest risk,” Pouey said.

One spot he particularly finds negative is small-cap stocks. Pouey urged investors to fade the rally that area — pointing out its forward PE is within just one percent of cycle highs.

Read original here by Stephanie Landsman of CNBC