11:08 AM EST, 11/06/2025 (MT Newswires) -- Bank of America ( BAC ) is entering a new period of operating leverage, which is expected to drive stock outperformance, Morgan Stanley said in a Thursday research report.

Management revealed a roadmap at its investor day to achieve the return on tangible common equity target of 16% to 18% over the next two to three years. Morgan Stanley said it modelled Bank of America ( BAC ) achieving the low end of the target in 2026 and exceed the target range in 2027 and 2028, at 19% and 21%, respectively.

The company plans to achieve targets through revenue growth, expense ratio improvement to 55% to 59% through AI-enabled efficiency enhancements, higher capital markets-related fee income, and net interest income tailwinds as the company's low-yielding held-to-maturity portfolio rolls off into higher-yielding loans and securities, according to the note.

The brokerage said it modelled operating leverage of 2.8% to 8.1% from Q4 2025 through Q4 2026, with full-year operating leverage of 2.7% in 2025, 5.1% in 2026, 5% in 2027, and 3.5% in 2028.

Organic fixed-rate asset repricing and investments in technology and process optimization support the outlook for sustained operating leverage, analysts wrote.

Morgan Stanley said it reiterated its overweight rating on the stock and raised its price target to $70 per share from $67.

Price: 52.96, Change: +0.50, Percent Change: +0.96