Bank of America Stock Down 1.80% Amid Raising Prime Lending Rate

Strategic Insights -

The Charlotte-based bank is facing a decline in stock price as it raises its prime lending rate to 3.5% from 3.25%, following the Federal Reserve's interest rate hike. Portfolio managers Jim Cramer and Jack Mohr of Action Alerts PLUS maintain their $20 price target on Bank of America stock, expecting over 10% earnings growth in 2016. Cramer and Mohr view the bank's undervaluation as a correction opportunity in coming quarters.

Key Takeaways:

  • Bank of America stock is down 1.80% to $17.44 in late morning trading on Thursday, following the bank's announcement of raising its prime lending rate to 3.5%.
  • The bank's prime lending rate increase is a response to the Federal Reserve's 25-basis-point interest rate hike, bringing the interest rate range to 0.25% to 0.5%.
  • Portfolio managers Jim Cramer and Jack Mohr of Action Alerts PLUS maintain a $20 price target on Bank of America stock, expecting over 10% earnings growth in 2016.
  • The bank's strong expense management and inflecting lending portfolio alleviate capital concerns.
  • Action Alerts PLUS, a charitable trust portfolio managed by Cramer and Mohr, has consistently been a top performer in the market.

Statistics:

  • Bank of America stock is down 1.80% to $17.44 in late morning trading on Thursday.
  • The bank's prime lending rate is raised to 3.5% from 3.25%.
  • The Federal Reserve's interest rate is increased by 25 basis points, bringing the rate range to 0.25% to 0.5%.
  • Bank of America is expected to achieve over 10% earnings growth in 2016, according to Action Alerts PLUS estimate.
  • The bank's net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Commercial Banks industry, with a growth rate of 2043.1%.

Sources:

  • TheStreet (http://www.thestreet.com)
  • CNBC (no specific citation provided)
  • Action Alerts PLUS (http://www.thestreet.com/k/aap/13401243/bank-of-america-is-still-our-favorite-bank-holding.html)
  • TheStreet Ratings (no specific citation provided)