(Recasts, adds details, share movement) Oct 13 (Reuters) - Stifel Nicolaus upgraded Bank of America Corp (BAC.N) to "buy" from "hold" saying the recent sell-off in its shares provides an appropriate risk/reward ratio. The upgrade also stemmed from talk from the U.S. Treasury that it might be willing to directly inject capital into the banking system by buying preferred shares rather than common shares, analyst Christopher Mutascio said in a note to clients.
This "has changed the playing field a bit and warrants selective risk taking," he said. Direct capital injections could restore some confidence that was not going to result from buying distressed assets through the troubled asset relief program, Mutascio said. "If banks believe their counter-parties have adequate capital to survive, then we believe it will spur increased inter-bank lending and eventually improve the outlook for overall lending," he said.
Mutascio cut his 2008 earnings estimates to $1.55 a share from $2.40, citing dilution from the company's recent $10 billion common stock offering, the acquisition of Merrill Lynch & Co Inc MER.N and lower core earnings power due to a poor economic environment and higher loan losses.
He also cut his 2009 earnings estimate to $2.50 a share from $3.30.
Mutascio also established a price target of $30 on the stock.
Shares of Bank of America were up 10.2 percent at $23.00 in early trade on the New York Stock Exchange. (Reporting by Amiteshwar Singh in Bangalore; Editing by Mike Miller)