UBS leans into Bank of America ahead of micro-focused bank earnings

By Steve Gelsi

BAC 'could be the most interesting money center' bank in upcoming earnings, UBS says

UBS analysts on Monday called Bank of America Corp. the "most interesting money center," as major banks approach second-quarter earnings season later this week.

While Wall Street has been absorbed by macroeconomic issues around the presidential election and the latest sentiment on a potential interest-rate cut by the U.S. Federal Reserve, reactions to bank earnings will also hinge on case-by-case updates from the banks themselves, UBS noted.

"We still think there are opportunities for investors to dig into singlestocks," UBS analyst Erika Najarian said Monday.

Bank of America (BAC) is set to report its second-quarter earnings on July 16, just after JPMorgan Chase & Co. (JPM), Wells Fargo & Co. (WFC) and Citigroup Inc. (C) this Friday.

Also read: JPMorgan Chase, Citi and Wells Fargo earnings to follow relative strength in their stocks

UBS said Bank of America's stock could be fueled by hopes of increased net interest income down the road. Lower short-term rates would allow the bank to pay less for funding such as deposits and borrowings.

Fed-funds futures traders see a roughly 75% chance of a rate cut by the U.S. Federal Reserve by September. Najarian said the move could accelerate Bank of America's net interest income performance as well as its net interest margin.

"Investors want to 'buy into' the normalized 2.3% to 2.4% net interest margin story - a credible explanation of how that's a possibility over the next few years could provide a lift to shares this [earnings] season," Najarian said.

Overall, analysts project Bank of America's net interest income to grow to 3% to $58.1 billion in 2025 and another 5% to $61.2 billion in 2026, according to FactSet consensus estimates.

UBS's Najarian reiterated a neutral rating on Bank of America and hiked her price target by $2 to $43 a share.

In other moves, UBS upgraded PNC Financial Services Group Inc. (PNC) to buy from hold, praising its "higher-quality" net interest income growth. UBS also lifted PNC's price target to $179 a share from $166 a share.

UBS downgraded KeyCorp to neutral from buy due to "subpar capital positioning" that may lead to lower-than-expected second-quarter revenue if it has to increase capital on its balance sheet after the recent Fed stress tests, UBS said. UBS cut KeyCorp's price target by $1 to $15 a share.

Also read: This is how much the largest 20 U.S. banks raised dividends after stress tests

-Steve Gelsi

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07-08-24 1322ET

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