Bank of America Corp (BAC) and Citigroup (C) benefit from tailwinds in the financial sector and are expected to continue showing operating efficiency improvement, all while currently trading at below tangible book value, says Daniel G. Lysik, Founder and Managing Director of Pratt Capital, LLC.
“I think some of the leading companies in the financial sector provide great long-term investment opportunities,” said Lysik. “Capital levels have been restored, asset quality trends continue to improve, loan growth is accelerating, net interest margins are starting to stabilize and companies are aggressively adjusting their cost structures to match the lower-revenue environment.”
Lysik says that while it may take some time for the market to fully understand Bank of America and Citigroup‘s earnings power, both franchises will continue to further book value growth and can still generate normalized return on equity of at least 10% as they right-size their cost structures.
“As of the latest earnings report, Bank of America’s tangible book is $13, their book value is greater than $20 and we believe their normalized earnings over the next couple of years is greater than $2 per share. Citigroup’s tangible book is $51, their book value is greater than $60 and we calculate their normalized earnings potential as greater than $7,” Lysik said.
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