Forget about Ken Lewis’ congressional testimony. The only Bank of America news Cramer cares about right now is Morgan Stanley’s declaration that the earnings estimates are too low.
That’s right – on Thursday Morgan went to a “Street high,” which is a bold earnings prediction far above any other presently in the market. It means that Morgan expects the stock to go much, much higher.
The earnings will come in 2010, Morgan Stanley analyst Betsy Graseck said. She predicted that Bank of America would generate $2.54 a share next year, a big jump over analysts’ average estimate of about $1. The legendary Meredith Whitney predicts just 20 cents or so. And Graseck’s call is still a full 25 cents higher than the previous top estimate, $2.19, from Wachovia.
Why the confidence? Graseck said mortgage fees, interest rate curves, the net interest margin and the Merrill Lynch acquisition are all contributing to the resurrection of BAC. Yes, even the much-maligned Merrill is playing its part, as the retail and investment banking business continues to grow. The brokerage, it seems, is merging well with Bank of America after all.
Not bad for a bank that some people thought was destined for nationalization. Cramer also likes the potential for BofA’s OREO – other real estate owned – to be a positive here. During tough times, banks are forced to take charges against their OREO. But when the market turns up, as it is now, and home sales take off, banks can unload their OREO. That could push the stock higher.
If all of this happens according to plan, Bank of America might be in position pay back its borrowed TARP funds – possibly as soon as this year’s Q4. That alone would boost earnings, and, in turn, the stock. A possible change in attitude from Wall Street’s other analysts, say, Meredith Whitney, offers another catalyst for BAC. If the stock gets just half the multiple of BofA’s peers, the share price could reach $20.
Bank of America is the best way to play the housing turn and what might be a coming breakout in bank earnings, Cramer said. For that reason, he called BAC “perhaps the most compelling buy in the whole stock market today.”
Cramer’s charitable trust owns Bank of America.
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