Canada’s six big banks increased their adjusted earnings per share by an average of just 3.1 per cent in fiscal 2019. That’s well short of the banks’ 11.6-per-cent EPS increase in 2018.
In fiscal 2020, the Big Six Canadian banks are not expected to do any better. In fact, their EPS is projected to rise an average of just 3.1 per cent again. Below are the projected growth figures and other data for all the six big Canadian banks. We continue to believe all of them are attractively valued.
■ Bank of Montreal (TSX—BMO) is forecast to earn $9.80 a share in fiscal 2020. That’s up 3.9 per cent from $9.43 in fiscal 2019. BMO trades at 10.5 times the 2020 estimate. These past five years, the bank’s average price/earnings (p/e) multiple was 11.5. Buy.
■ Bank of Nova Scotia (TSX—BNS) trades at just 9.9 times the $7.35 a share that it’s forecast to earn this fiscal year. That’s up 2.9 per cent from the $7.14 a share Scotiabank earned in fiscal 2019. The stock’s average p/e ratio in recent years is 11.1. Buy.
■ Canadian Imperial Bank of Commerce (TSX—CM) trades at 9.1 times the $12.02 a share that it’s forecast to earn this fiscal year. That’s up just 0.8 per cent from the $11.92 a share the bank earned in fiscal 2019. The stock’s average p/e ratio is 9.8. Buy.
■ National Bank of Canada (TSX—NA) shares trade at 11.1 times this year’s forecast earnings of $6.66 a share. That’s up 4.7 per cent from the $6.36 a share the bank earned in fiscal 2019. The stock’s average p/e ratio is 10.5. Though the shares trade at a premium to their historical multiple of recent years, we see room for further expansion of the multiple. The bank, therefore, is still attractively valued. Buy.
■ Royal Bank of Canada (TSX—RY) shares trade at 11.4 times this year’s forecast earnings of $9.26 a share. That’s up 3.8 per cent from the $8.92 a share the bank earned in fiscal 2019. The stock’s average p/e ratio is 11.8. Buy.
■ Toronto-Dominion Bank (TSX—TD) shares trade at 10.7 times this year’s forecast earnings of $6.87 a share. That’s up 2.7 per cent from the $6.69 a share the bank earned in fiscal 2019. The stock’s average p/e ratio is 12.0. Buy.
Based on valuations and dividends alone, we see Scotiabank as the one Canadian bank stock that offers the greatest total return (capital appreciation plus dividend yield) potential over the next year. Keep in mind, though, that the bank’s low valuation reflects unrest in Chile and the ongoing integration of previous acquisitions.
This is an edited version of an article that was originally published for subscribers in the February 14, 2020, issue of Money Reporter. You can profit from the award-winning advice subscribers receive regularly in Money Reporter.
Money Reporter, MPL Communications Inc.
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