(May 29 – 17:45 ET) – Despite the recent strength of Canadian bank stock, they’re a good value-purchase, say the analysts at Merril Lynch.
The banks are up about 14% so far this year. All the banks are within a whisker of their 52-week highs, although, CIBC and TD are lagging. But despite these advances Merrill says the banks are still a bargain compared to the market overall.
The banks are trading at about 40% of the TSE’s relative forward estimated price/earnings ratio, compared with a historic average of 70%, says Merrill. Combine this fundamental undervaluation with expected strong earnings growth and the banks remain attractive. “We maintain a very bullish view on earnings growth at 16-20% this year and 13-15% next year,” says Merrill.
The strong earnings should also spell bigger dividends and greater buybacks. Merrill notes that three of the big banks are already buying their shares, and it suggests that Scotia could be in a position to join them by year end.
-IE Staff