Desjardins Raises 7 out of 8 Desjardins Securities analyst Doug Young remains bullish on Canadian bank stocks, seeing a favourable backdrop heading into first-quarter 2022 earnings season.
“Is there life after COVID-19? The consensus from recent client meetings would suggest yes, investors are looking past recent hiccups,” he said in a research report released Wednesday.
Mr. Young is projecting a 5-per-cent year-over-year increase in cash earnings per share on average for the Big 6 banks. However, citing variances in reporting allowances for credit losses (ACLs) under IFRS 9, and “the uncertainty around the Omicron variant,” he said his focus will be pre-tax, pre-provision earnings, which he expects to be flat.
“To be clear, we would view this as a positive outcome for the group. At the all-bank level, we will be focused on NIMs, loan growth and expense trends. More importantly, we will be more focused on whether management outlooks have changed,” he said.
“While we expect decent pre-tax, pre-provision earnings growth in Canadian P&C banking and wealth management, at the consolidated level we believe this was offset by a significant decline in capital markets, mostly due to a tough comp. Credit? Anyone’s guess. We sure have not seen any deterioration of late.”
After tweaking his financial estimates, Mr. Young raised his target prices for shares of seven of the eight banks in his coverage universe.
In other of preference, his changes were:
- Toronto-Dominion Bank (
, “buy”) to $110 from $107. The average on the Street is $106.83, according to Refinitiv data. - Bank of Nova Scotia (
, “buy”) to $95 from $90. Average: $95.66. - Bank of Montreal (
, “buy”) to $157 from $150. Average: $159.11. - Canadian Western Bank (
, “buy”) to $44 from $43. Average: $42.91. - Royal Bank of Canada (
, “buy”) to $146 from $143. Average: $146.16. - National Bank of Canada (
, “hold”) to $106 from $105. Average: $107 - Canadian Imperial Bank of Commerce (
, “hold”) to $162 from $157. Average: $167.09.
His target for Laurentian Bank of Canada (
, “hold”), No. 8 in his pecking order, remains $48, exceeding the consensus by $1.
“The stocks outperformed in FY21 on the back of significantly better-than-anticipated credit results and an improved economic outlook,” said Mr. Young. “With the economic recovery well underway and the potential for earlier and faster rate hikes given higher inflation, we believe the set-up is good for the banks in the coming year. That said, there are some near-term headwinds such as normalizing capital markets activity and the potential for a cooling housing market. In addition, cash EPS will face a tough year-over-year comp as FY21 included significant performing loan ACL releases, which we expect to normalize over the course of the year. Also, COVID-19 risks have clearly not disappeared.”