Shares of Bank of America Corp. rallied to a record close in active trade Thursday, after Raymond James turned bullish on the banking giant on the belief it would see “better days ahead” with Donald Trump in the White House.
Analyst David Long at Raymond James upgraded Bank of America BAC, +2.16% to outperform, after being at market perform since early July. He set a stock price target of $ 26, which is about 12% above current levels.
“Simply put, we view Bank of America as a general proxy for the health of the economy, and, with expected changes brought by the incoming presidential administration under Trump, we see better days ahead,” Long wrote in a note to clients.
The stock shot up 2.2% on Thursday, to surpass the Dec. 9 record close of $ 23.09. Volume was 159 million shares, making it the most actively traded stock listed on the New York Stock Exchange.
Financial stocks have been on a tear since the election, on the belief that a Trump administration, coupled with a Republican majority in Congress, will reduce the regulatory burden the industry has been faced with since financial crisis led to the taxpayer bailout. Investors also believe the sector will benefit from lower corporate tax rates and pro-growth initiatives, which should boost capital returns by helping to lift longer-term interest rates.
On Wednesday, the Federal Reserve raised interest rates for the first time in a year, and just the second time since the financial crisis.
Bank of America’s stock has rocketed 36% since the election, compared with an 18% surge in the SPDR Financial Select Sector exchange-traded fund XLF, +0.85% and a 5.7% gain in the S&P 500 index SPX, +0.39% over the same time.
In classic sell low, buy high fashion, Long had downgraded BofA to market perform in early July because he said he believed progress toward profitability targets would stall, amid concerns that the current rate outlook wasn’t likely to change as quickly as hoped, that consumer credit trends would begin deteriorating and loan growth would remain challenged.
Instead, the stock rallied 33% from the July 5 closing low of $ 12.74 until the election, and has soared 82% through Thursday afternoon.
“The question we expect to receive on our more constructive view on BAC is why now, after such a run up in their stock,” Long wrote. “However, with the changing of the guard, the prospect of stronger economic growth, a lengthening of the credit cycle, higher interest rates and a clearer path to achieving its profitability targets, we see risk-reward more positively than we did under the prior administration.”
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As difficult as the “prior administration” was perceived to be, BofA reaped over $ 40 billion in net income in the past 7 years and three quarters, including nearly $ 12 billion through the first nine months of 2016, according to FactSet data.
But that just wasn’t enough for Wall Street. BofA is currently projected to take in about $ 39 billion in just the next two years, according to FactSet.