Jefferies Names Top Franchise Pick By Investing.com

Investing.com -- Jefferies has selected Bank of America as its top franchise pick, citing a compelling longer-term story despite near-term investment banking fee softness expected in the third quarter of 2026. Get premium news and AI stock picks by upgrading to InvestingPro The firm acknowledged that investment banking fee weakness is driving downward adjustments to earnings per share estimates, with third quarter 2026 fees projected to decline 40% year-over-year according to Dealogic data. However, Jefferies now models a more modest 21% decline, anticipating a stronger September. The fee weakness is concentrated in advisory, down 57% year-over-year, and debt capital markets plus loan fees, down 46% year-over-year. Equity capital markets fees are up 24% year-over-year, and the firm views the softness as a function of deal timing rather than franchise erosion. Bank of America Jefferies maintains Bank of America as a franchise pick based on fixed-rate asset repricing that remains early and back-end loaded, with 90% of maturities still to come in 2027-2031. This supports a net interest income compound annual growth rate of 5% to 7% over the medium-term and a net interest margin target of 2.30% to 2.40%, compared to 2.08% in the second quarter. The firm tweaked its 2026 and 2027 earnings per share estimates to $4.65 and $5.30 from $4.70 and $5.35, respectively, and introduced a 2028 estimate of $5.90. Fixed-rate assets equal to 11% to 13% of average earning assets reprice through 2031, with $355 billion to $390 billion of maturities. Only $50 billion to $60 billion mature in 2026, with $305 billion to $330 billion coming in 2027-2031. The repricing comes from three low-yielding books: a $410 billion held-to-maturity mortgage-backed securities book at 1.9%, a $121 billion held-to-maturity Treasury book at 1.4%, and a $226 billion residential mortgage book at 3.5%. With these redeploying at a 150 to 200 basis point pickup and a $100 billion receive-fixed hedge book rolling off through 2027, net interest income is guided to the upper end of 6% to 8% in 2026. Jefferies believes Bank of America warrants a higher multiple as earnings power, return on tangible common equity, and franchise quality improve, projecting a 17.4% 2027 core return on tangible common equity. In recent developments, Bank of America's Mexican affiliate was one of several banks that agreed to an $86.4 million settlement to resolve a lawsuit related to the Mexican government bond market. The company also hired two managing directors to expand its technology investment banking practice, focusing on semiconductors and Latin America. This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.