Desjardins In a fourth-quarter earnings preview for Canada’s banking sector titled Stranger things, Desjardins Securities analyst Doug Young cautions near-term patience is required, but “the snapback could be quick.”
“As the chilly winds of 4Q FY23 stir, Canadian banks are preparing to unveil their tales, starting with BNS on November 28 and concluding with CWB on December 8,” he said. “Banks are like the haunted houses of the market, with shadows of an impending recession spooking investors. Their flight from this sector is hardly surprising given the gloomy memories of banks’ past performance during recessions. Concerns include rising credit provisions, decelerating loan growth, mounting capital requirements, downward estimate revisions and lurking (geo)political risks. However, we would argue that these are reflected in bank valuations, with multiples close to or below historical lows on a P/BV basis.”
Mr. Young is projecting a 5-per-cent year-over-year decline in cash earnings per share, driven largely be credit normalization. However, the analyst is forecasting an 8-per-cent rise in adjusted PTPP earnings, which is a key metric in his analysis, based on “growth in P&C banking (Canada, U.S. and international) and capital markets (easy comps).”
Updating his cash EPS estimates and introducing his 2025 expectations, Mr. Young said downward earnings revisions “remain a concern,” however he thinks “the pace of cuts could ease.”
With those changes, he updated his target prices for stocks. In order of preference, they are:
- Toronto-Dominion Bank ( “buy”) to $96 from $100. The average on the Street is $91.85.
- Royal Bank of Canada ( “buy”) to $136 from $141. Average: $135.39.
- Canadian Western Bank (, “buy”) to $33 from $34. Average: $32.82.
- Bank of Montreal ( “buy”) to $130 from $133. Average: $128.57.
- National Bank of Canada ( “hold”) to $99 from $103. Average: $101.89.
- Bank of Nova Scotia (“hold”) to $64 from $70. Average: $67.34.
- Canadian Imperial Bank of Commerce ( “hold”) to $55 from $62. Average: $60.76.
- Laurentian Bank of Canada ( “hold”) to $29 from $35. Average: $34.91.