Investors underestimate several Canadian banks, but they are generally in good shape when they begin to inform the profits of the second quarter this week, says a research team.
“Despite the high uncertainty in macroeconomic perspectives, with persistent risks of a possible commercial war, we are generally constructive with Canadian banks,” analyst Mike Rizvanovic and associate Felix Fang in the Bank of Nova Scotia said in a note. “We believe that the group is as ready for recession as always.”
The couple especially as banks for the “stability and resistance of their Canadian loan business.”
They said that banks are now better prepared for credit losses and have more “ability to absorb an increase in losses”, while their level one capital relations, which measure the financial resistance of a bank, have been built since the COVID-19 pandemic in approximately 200 basic points.
This is how six of the banks (Scotiabank are not covered) are stacked.
Royal Bank of Canada
Rizvanovic and Fang put RBC at the top of the package for some reasons: he is a strong player in the Canadian market, his income comes from diversified sources, he has a “clean record already long term” and there are still profits of the purchase of HSBC Canada last year.
“In addition to that, (RBC) tends to be the most reliable of its colleagues, which makes it the most popular option for most Canadian bank investors in times of macroeconomic turbulence, which we currently face,” they said.
Objective price: $ 188
Total return of one year: 15 percent (including dividends)
Canadian Imperial Commerce Bank
“To put it without surroundings, the change of time, and we do not believe that (those of CIBC) past in false pass by how the actions are valued today,” analysts said, pointing out that it has easily exceeded earning expectations in the last six rooms.
That in addition to a healthy capital position that would allow you to buy shares and a discount assessment translates into a good “advantage” for shares, they said.
Objective price: $ 98
Total return of one year: 14 percent (including dividends)
National Bank of Canada
Rizvanovic and Fang placed the National Bank of Canada among their best options because their recent low relative performance provides the “investors for a favorable entry point.”
Investors appear disagree with the risk of credit losses in the subsidiary of the ABA Bank of National and an “increase” in the provisions of credit losses in the last quarter.
But they think the markets are underestimating “the considerable potential potential” of the acquisition of Canadian Western Bank.
Objective price: $ 135
Total return of one year: 11 percent (including dividends)
Toronto-Dominion Bank
The couple believes that the recent rally in the actions of TD has followed their course and recommend that investors must remain on the sidelines until there is more clarity about how much the asset limit will last in the bank’s retail operation in the United States.
The limit was one of the penalties imposed by US authorities in the case against money laundering, in addition to fines for a total of US $ 3.1 billion.
The second largest bank in Canada for market capitalization has a lot of inactive capital that wants to work in the retail market of this country, but Rizvanovic and Fang said it will be difficult because the landscape is already quite “mature.”
The new executive president Raymond Chun is expected to publish a reorganized strategy in the coming months. Until then, analysts think it is better to contain themselves.
“TD is clearly at a turning point,” they said.
Objective price: $ 90
Total return of one year: six percent (including dividends)
Montreal Bank
BMO has fought against a couple of winds against, including slow growth in its American loan segment, mainly on the commercial side, and credit losses, which has led him to lose profit expectations in nine of the last 12 quarters.
“BMO seems to be the worst, but, in our opinion, this leaves a persistent uncertainty in the short term for investors in the current Canadian and American macroeconomic backdrop,” Rizvanovic and Fang said. “We believe that the adverse trend highlights the lack of execution that needs to improve before we become more constructive in the stock.”
Objective price: $ 143
Total return of one year: five percent (including dividends)
Laurentiano Banco de Canada
Laurentian is a “show story for at least the next quarter,” said Rizvanoivic and Fang recommending that investors wait to see if the new bank strategy produces some tangible result.
In addition, the “necessary” expense in technology could result in “unexpectedly high expenses,” they said.
Objective price: $ 28
Total return of one year: nine percent (including dividends)
• Email: gmvsuhanic@postmedia.com
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