Desjardins Desjardins Securities analyst Doug Young warns a rebound for Canadian bank stocks following third-quarter earnings season won’t come quickly.
“No fast pass for this quarter,” he said in a research report released Wednesday titled Stuck in the standby line?.
“Adjusted pre-tax, pre-provision (PTPP) earnings were on average in line with our expectations for the Big 6 banks. End of the day, TD was the winner in our view. Looking forward, as we’re standing in line with sore feet and impatient kids, the expectation of the ride is uplifting, but how long will it take to get there and what might occur along the way? We would argue a lot of bad news is priced in given the group’s valuation discount vs historical levels. However, if you want to go on the big coaster, you can expect to wait—financials are not a late-cycle sector and it’s tough to argue for material multiple expansion right now.”
While remaining “constructive” on the sector over the next 12 months, Mr. Young thinks a series of “lingering” concerns could weigh on stocks: “(1) whether we’re headed into a recession; (2) geopolitical events; (3) supply chain issues; (4) inflationary pressures; and (5) normalizing PCLs. A lot of bad news is priced into bank stocks, with the group trading at a 25-per-cent discount to its historical average on a P/BVPS basis; however, financials are not a late-cycle sector, so it’s tough to argue for material multiple expansion in the near term.”
- Royal Bank of Canada ( “buy”) with a $141 target Average: $137.75.