Shares of Bank of America Corp. (NYSE:BAC) climbed as much as 3.5 percent on Thursday afternoon after an analyst at Citigroup gave the stock a huge thumbs up. Keith Horowitz upgraded the stock to a Buy and slapped on a $19 price target, representing possible upside of 22 percent from the previous closing price of $15.57 and about an 18 percent premium on the current median analyst price target of $16 per share.
In a note seen by Barron’s, Horowitz argued that a healing economy and slowly evaporating legacy issues (read: a mountain of post-crisis litigation) could be a winning combination for the company in 2014. “If US economy continues to improve,” Horowitz wrote, “we believe investors will look to BAC (as well as JPM) as a play on the US economy due to an asset sensitive balance sheet and exposure to the US consumer.”
JPMorgan Chase & Co. (NYSE:JPM), more beleaguered by major headline litigation right now than Bank of America, also received an upgrade from Horowitz. The analyst set a $72 price target on the stock, representing a possible upside of about 23.1 percent from the stock’s previous close.
Bank of America stock is up nearly 29.5 percent on the year, beating the S&P 500 but lagging some industry peers like Goldman Sachs (NYSE:GS) and Morgan Stanley (NYSE:MS), up 34.6 percent and 59.8 percent, respectively. JPMorgan is up about 30.1 percent over the same period.
The Fed-fueled low interest rate environment helped fuel the industry in 2013, but as the economy recovers, the taper develops, and interest rates climb, income from mortgage banking has declined as originations fall. What was once a tailwind is evolving into a headwind, and the industry will have to find business in other parts of the economy.
This has caused even analysts like Horowitz to have mixed feelings about the industry. Earlier in December, he suggested that the changing interest-rate environment could prove to be challenging for some banks. Evolving regulation and the implementation of the Volcker Rule could also cause headaches for the industry.