Bank of America Corp.'s stock price has risen 36% so far this year, but Sean J. Ryan, an analyst at Fulcrum Global Partners LLC in New York, says the stock has gotten ahead of itself.
On Wednesday he initiated coverage of his former employer with a "sell" rating. Bank of America continues to battle credit quality issues, but its stock has easily outperformed the Standard & Poor's 500 index, which has fallen 10% this year, Mr. Ryan said.
Before joining Fulcrum, a four-month-old broker-dealer that provides research for institutional investors and hedge funds, Mr. Ryan was a banking analyst at Banc of America Securities Inc. Before that he worked at Bear, Stearns & Co., where his bearish outlook of the banking sector was apparently less welcome than at Fulcrum.
Some analysts agree with Mr. Ryan's assertion that Bank of America is a long way from overcoming its problems in asset quality. However, the credit problems have become less of an issue for investors - among them some of the company's harshest critics - who were pleasantly surprised by its second-quarter earnings.
Last week the Charlotte, N.C., company reported that its per-share earnings rose a penny from a year earlier and 8% from the first quarter, to $1.24, which beat the analyst consensus estimates by 6 cents. Its net interest margin rose 21 basis points from the same period last year, to 3.62%, but the percentage of net chargeoffs increased 34 basis points, to 0.82% of its loan portfolio.
The company reported $6.2 billion of nonperfoming loans. The percentage of nonperformers in its portfolio climbed 66 basis points, to 1.63%.
While Mr. Ryan conceded that Bank of America's last quarter was strong, he said that its balance sheet improvements and strong margin expansion are already priced into the stock. Also, the company has too much leverage in its $6.9 billion loan-loss reserve, he said.
Mr. Ryan said he would consider recommending the stock only after Bank of America's credit quality problems bottom out. The current economic climate means that is unlikely this quarter or the next, he said.
Bank of America is not the only company Mr. Ryan has given a "sell" rating. He also has that rating on Bank One Corp. and First Union Corp.
And he is not the only analyst bearish on Bank of America. Charles W. Peabody of Mitchell Securities has it on "sell," and Thomas F. Theurkauf and Robert Ax of Keefe, Bruyette & Woods Inc. have an "underperform" on the stock.
However, Andrew B. Collins, an analyst with U.S. Bancorp Piper Jaffray (and formerly at ING Barings), upgraded the stock to "strong buy" on July 17, and Michael L. Mayo of Prudential Securities Inc., who is known for his frequent "sell" ratings for banking companies, has given Bank of America his top rating, "buy."
On Wednesday the stock rose 0.63% to close at $62.40. Mr. Ryan said his target price for the stock is $50 a share.
Meanwhile, Bank of America filed a shelf registration with the Securities and Exchange Commission on Tuesday to sell $3.4 billion of debt securities.