Desjardins While Desjardins Securities analyst Doug Young expressed enthusiasm about the coming fourth-quarter earnings season for Canadian banks, he warned investors the market isn’t likely to “reward” stocks in the sector “due to the lingering economic uncertainties and concerns as we peer out over the next year.”
In a research note released Monday titled Third verse same as the first..., he added: “We’ll be playing the same old song this quarter. The Canadian banks’ 4Q FY22 earnings season kicks off with BNS on November 29. We think it could actually be a decent quarter for the group, with strong P&C banking results offsetting weakness in capital markets. Not dissimilar to what we saw in U.S. banks’ 3Q22 results.”
While Mr. Young thinks macroeconomic concerns are already priced into bank stocks, he expects near-term valuation multiple expansion to be unlikely.
“The Big 6 Canadian banks are all trading below their 20-year historical average P/BVPS multiples,” he said. “If the Canadian economy remains resilient and recession concern eases, we could see valuation multiples improve; however, it is too early to make that call in our opinion.”
For the quarter, Mr. Young is forecasting a 3-per-cent year-over-year decline in cash earnings per share for the Big 6 on average “with the decline mostly attributable to lapping a quarter with larger releases in performing loan ACLs, but also reflects a normalization in capital markets results.”
After tweaking his estimates for the sector, Mr. Young made these target adjustments in order of stock preference:
- Toronto-Dominion Bank (TD-T, “buy”) to $103 from $104. The average on the Street is $99.21.
- Bank of Montreal (BMO-T, “buy”) to $148 from $150. Average: $148.14.
- Royal Bank of Canada (RY-T, “buy”) to $140 from $141. Average: $137.08.
- Canadian Western Bank (CWB-T, “buy”) remains $33. Average: $33.29.
- National Bank of Canada (NA-T, “hold”) to $99 from $100. Average: $102.08.
- Bank of Nova Scotia (BNS-T, “hold”) to $76 from $83. Average: $82.96.
- Canadian Imperial Bank of Commerce (CM-T, “hold”) to $70 from $73. Average: $74.84.
- Laurentian Bank of Canada (LB-T, “hold”) to $35 from $41. Average: $42.38.