Dialing Back Our Price Target for This Big Bank Holding

Following up on our quick comments about Bank of America’s BAC consensus beating March quarter results, we are lowering our price target on the shares to $45 from $53.

The decision for that adjustment stems from pushed-out expectations for the IPO market and a slower pace of economic growth. While management shared that its investment banking pipeline is “healthy,” its clients are waiting on clarity before moving forward with intended transactions. When it comes to BofA’s investment banking activity, M&A deals should remain a favorable driver, and market volatility keeps its trading revenue elevated. Should we see the IPO market re-open on a sustained basis or M&A activity accelerate in a meaningful way, that would be a reason for us to revisit our BAC price target and could be a catalyst to revisit our rating.

In terms of the economy, BofA currently sees no recession in 2025, but it also doesn’t see the Fed delivering any rate cuts this year, but as inflation gets under control it sees the potential for some cuts in 2026. BofA reported a 4% increase in loans to $1.09 trillion, driven by 7% commercial loan growth (9% excluding commercial real estate). Given the business uncertainty metrics, we’ve seen in the February and March NFIB Small Business Optimism Index, we are not surprised to see BofA’s loan activity rise as companies look to shore up balance sheets and inventory levels ahead of expected Trump tariffs. As we move through the coming months, we’ll keep close tabs on monthly ISM data to determine if March quarter loan activity was just a pull-forward in demand. Watching the same data from ISM may also tell us if we’re likely to see loan activity soften in the months ahead.

We do expect the bank to make inroads against smaller, regional banks allowing continued growth in its overall account base, a lead generator for its wealth management business, and vice versa. The company continues to lean into digital banking for its consumer, commercial and wealth management businesses, which should help keep a reign on cost growth. Management targets 2% to 3% expense growth this year, and a tight rein on costs could translate into larger stock buybacks, especially if we see an acceleration in investment banking activity.

In looking at the data reported by BofA for credit and debit spending across its customer base, overall spending rose 4% compared to 1Q 2024. Across its reported categories we find travel and entertainment spending rose 3% year over year, food rose 2%, retail was up 1% and services climbed 5%. Those data points support the Portfolio’s position in American Express AXP and Costco COST.

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At the time of publication, TheStreet Pro Portfolio was long BAC, AXP and COST.