Morningstar Analyst Bearish on Bank of America (BAC) But Keeps $25 PriceTarget

In a research report today, Morningstar analyst Jamie Peters was not impressed with Bank of America’s earnings, (NYSE: BA) even though they beat her estimates. Oddly enough the stock is still rated 4 out of 5 stars on Morningstar’s website and her price taget is $25. Perhaps she should have a nasty argument with herself since she is both bearish and has a buy on the stock

She says the earnings were driven by lower loan losses and a series of one time gains. She thinks that the new financial regulations will negatively affect earnings:

“Looking beyond the noise, fundamentals show the company operating closer to break-even on an ongoing business. Additionally, several revenue lines are at risk because of the various changes in regulation and rules. Balancing all of the moving parts, we expect to reduce our fair value estimate despite the better-than-expected results, and we warn that Bank of America is likely to see its bottom line temporarily dip back into the red in the third quarter.”

Peters thinks the Durbin amendment which imposes higher interchange fees for credit cards could wipe out 80% of this revenue:

“Bank of America must also deal with the impact of the recently passed financial reform bill. The company expects to take a goodwill charge of $7 billion-$10 billion in its global card services business line when President Obama signs the financial regulation bill into law sometime in the third quarter. The “Durbin amendment,” which gives the Federal Reserve Board the ability to set debit card interchange fees, could wipe out as much as 80% of this highly profitable revenue source beginning in the third quarter of 2011.”

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