Inside the Market’s roundup of some of today’s key analyst actions
The market is “crawling up the wall of worry” heading toward second-quarter earnings season for Canadian banks, according to Desjardins Securities analyst Doug Young, who believes “a lot of bad news is priced in.”
“It seems that a majority of investors remain underweight Canadian bank stocks,” he said. “Concerns range from a lack of cash EPS growth, the tempered outlook for NIMs/loan growth, potential for credit surprises and macro/ geopolitical tension, etc.”
Mr. Young is currently forecasting a 3-per-cent year-over-year decline in cash earnings per share for the quarter, driven by higher provisions for credit losses and tax rates.
“More importantly, we expect an 8-per-cent year-over-year increase on average in adjusted pre-tax, pre-provision (PTPP) earnings (down 1 per cent quarter-over-quarter),” he added. Our year-over-year growth estimate is driven by Canadian banking and a modest increase in capital markets, offset by weaker U.S. banking results.
“In terms of key metrics, on average and on a year-over-year basis, we expect relatively stable all-bank NIMs excluding trading, steady adjusted efficiency ratios and modest increases in PCL rates. Investors will be particularly focused on credit, watching for any signs of stress among Canadian consumers or CRE. We expect CET1 ratios to remain above minimum targets of 12.0–12.5 per cent.”
In a research report released Monday, Mr. Young declared “this quarter has something for everyone.”
“BMO aims to demonstrate that last quarter’s weak results were an anomaly,” he said. “Note that we dropped our BMO 2Q FY24 cash EPS estimate, which is now below consensus. To state the obvious, if it disappoints again, BMO stock will face near-term pressures. RY will provide updates on its HSBC Canada acquisition. TD has taken an initial provision for its U.S. regulatory issue. What’s next? Will NA’s capital markets results continue defying expectations? Can CM maintain NIM stability and expense controls? How’s BNS doing against last year’s investor day targets?”
The analyst maintained is ratings and pecking order for the eight banks in his coverage universe, but he made several target price adjustments. In order of preference, his targets are now:
- Bank of Montreal (
, “buy”) at $133 (unchanged). The average on the Street is $132.92, according to LSEG data. - Canadian Western Bank (
, “buy”) at $33, down from $35. Average: $33.73. - Royal Bank of Canada (
, “buy”) at $142 (unchanged). Average: $142.92. - Toronto-Dominion Bank (
, “buy”) at $93, down from $94. Average: $87.70. - National Bank of Canada (
, “hold”) at $116, up from $109. Average: $113. - Bank of Nova Scotia (
, “hold”) at $68 (unchanged). Average: $67.40. - Canadian Imperial Bank of Commerce (
, “hold”) at $67, up from $66. Average: $67.92. - Laurentian Bank of Canada (
, “sell”) at $26 (unchanged). Average: $27.36.