Bank of America was raised to buy from sell by Mike Mayo, an analyst at CLSA, who said the company’s low valuation and “lousy” efficiency increase the chance shareholders will demand a spin-off or other type of restructuring.
Bloomberg News reports that the bank, whose shares dropped 20% this year through Thursday, trades as if it were struggling through a recession when the economy is actually expanding, Mayo said in a research note Friday. That gives investors a margin of safety, he wrote, adding that the firm’s parts are worth 40% more than its current market capitalization.
“The lower stock price is not just a more attractive entry point, but it also could be the catalyst for an event,” Mayo said in a telephone interview. “Calling Carl Icahn: look at the math.” Icahn is an activist investor who’s currently pressuring insurer American International Group to shrink and boost returns.
Bank of America CEO Brian Moynihan, in charge since 2010, has sold more than $60bn in assets, boosted capital levels and reduced expenses while settling the biggest legal burden faced by any lender. Still, the January rout in financial stocks has left the company trading below tangible book value. That indicates investors either don’t believe the firm’s assets are worth what it says, or they doubt management’s ability to generate returns above the cost of capital, Mayo said.
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