BofA Cuts Rival Targets & Estimates, Not All Bad News (BAC, GS, MS, JPM, C)

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Bank of America Corporation (NYSE: BAC) has been the subject of more rumors and more speculation than one could imagine.  Most of the rumors and speculation feel like 2008 rather than 2011.  There is a theory that when a bank upgrades other banks in analyst research calls, it is upgrading itself (bank analysts do not issue formal recommendations on their own public bank).  So what about when a bank research report is downgrading other banks?

This morning we have seen a sector-wide cutting of estimates and price targets by Bank of America/Merrill Lynch, just a day after J.P.Morgan’s credit research team actually upgraded BofA calling the selling irrational.  Still, BofA sees volatility spikes from equity derivatives, challenges for FICC, spillover from the S&P downgrade of the United States, expanding geographic concerns in Europe, weak investment banking, declines in equity prices, and even increased recession concerns.  Here are the price target cuts and the Q3 earnings per share cuts issued this morning:

  • Goldman Sachs Group Inc. (NYSE: GS) saw its price target cut to $148 from $153; estimates were cut to $1.25 EPS from $3.05 EPS.
  • Morgan Stanley (NYSE: MS) saw its price target cut to $25 from $26; estimates were cut to $0.44 EPS from $0.49 EPS.
  • J.P. Morgan Chase & Co. (NYSE: JPM) saw its price target cut to  $51 from $55; estimates were cut to $1.07 EPS from $1.30 EPS.
  • Citigroup Inc. (NYSE: C) saw its price target cut to $50 from $53; estimates cut to $0.83 EPS from $0.94 EPS.

The report is not just all bad news.  In fact, the bulls are using the good part of the highlights as support today.  BofA cited improving credit card trends, strong mortgage refinance activity, and strong cash equity trading.

Bank stocks are surging this morning regardless of BofA’s ‘downgrade’ this morning.  BofA shares are up 9% at $6.88, Goldman Sachs is up 3.3% at $110.00, Morgan Stanley is up 3% at $16.26, J.P.Morgan is up almost 3% at $35.73; and Citigroup is up 3% at $28.17.

So, why is this not all that bad?  Look at the price targets!  Goldman Sachs $148 versus $110.00 now; Morgan Stanley $25 versus $16.26 now; J.P.Morgan $51 versus $35.73 now; and Citigroup $50 versus $28.17.  The report comes off as bad news, but sometimes bad news has a silver lining and investors treat it as good news.

JON C. OGG