Canadian bank stocks ‘remain under-appreciated': B
Canadian bank stocks ‘remain under-appreciated': BMO
DARCY KEITH
THE GLOBE AND MAIL
Last updated Wednesday, May. 22 2013, 5:25 PM EDT
A Scotiabank location in Toronto. (Deborah Baic/The Globe and Mail)
Inside the Market’s roundup of some of today’s key analyst actions. This post will be updated with more analyst commentary during the trading day.
Canadians are deep into debt and the housing market is slowing, but investors shouldn’t assume that will translate into a poor outlook for Canadian bank stocks, says BMO Nesbitt Burns.
When looking at the total returns offered by the banks, including dividends, BMO believes that they actually “remain under-appreciated.”
“We believe that Canadian banks can deliver solid 5-7 per cent earnings per share and dividend growth in a slow growth environment,” BMO analysts led by Tom MacKinnon said in a research note today.
The banks begin revealing their fiscal second-quarter results later this week. BMO thinks they should have another solid quarter in terms of domestic consumer credit performance.
“We continue to believe that the best predictors of consumer credit losses will likely be employment data and the unemployment rate,” it said. “Clearly there has been a slowdown in employment data, but the unemployment rate remains steady. This is not surprising given the expectations of relatively modest GDP growth over the next 6–12 months.”
He forecasts provisions for credit losses in the Canadian banking businesses to be $1.10-billion in the second quarter, higher than an unusually low $1-billion in the first quarter of 2013 but in line with the $1.15-billion a year ago.
Target: Of the major Canadian banks, BMO is most bullish on the Bank of Nova Scotia, with a $67 price target and an “outperform” rating. The average price target among analysts on Scotiabank is $65.18, according to Bloomberg data.
BMO also has “outperform” ratings on Canadian Imperial Bank of Commerce (with a target of $89), Toronto Dominion Bank (target $90), and Canadian Western Bank (target $32) .