BofA Securities sets National Bank of Canada stock Buy rating

On Friday, BofA Securities began coverage on shares of National Bank of Canada (TSX:NA:CN) (OTC: OTC:NTIOF), assigning a Buy rating and setting a price target of Cdn$150.00. The firm’s analysts highlighted the bank’s potential to outperform in a competitive market, citing its status as the smallest Canadian bank by assets as an advantage for growth and market share expansion, particularly outside its primary market in Quebec. According to InvestingPro data, the bank’s recent revenue growth of 12.1% supports this optimistic outlook, with current metrics suggesting the stock may be undervalued relative to its growth potential.

The analysts at BofA Securities see National Bank of Canada as a unique growth opportunity within the saturated Canadian banking sector. They believe the bank’s smaller size equips it with the agility to increase its presence beyond Quebec, which could lead to significant gains in market share. The firm’s price target suggests a 20% upside from the current valuation, with an additional 3.6% dividend yield for investors. Notably, InvestingPro data reveals the bank has maintained dividend payments for 46 consecutive years and raised them for 15 straight years, demonstrating strong commitment to shareholder returns.

BofA Securities’ positive outlook is supported by their projection of a 15.7% return on equity (ROE) for National Bank, which they expect to lead its peers. They attribute this strong performance forecast to the bank’s efficient management team, which is anticipated to be a key driver in the stock’s potential outperformance.

In terms of valuation, National Bank of Canada is currently trading at a price-to-earnings (P/E) ratio of 10.5 times its projected 2026 earnings. This valuation aligns with the average of its peers, yet stands at a discount when compared to Royal Bank of Canada (RY), which trades at a higher P/E ratio of 11.9 times. The analysts believe this presents an attractive entry point for investors considering the bank’s growth prospects and management quality.

In other recent news, National Bank of Canada has been in the spotlight due to several key developments. RBC Capital Markets has maintained its Sector Perform rating on the bank, while updating its earnings per share (EPS) estimates following the earlier-than-expected completion of the Canadian Western Bank (TSX:CWB) acquisition. The EPS forecast for 2025 has been adjusted to $10.76, up from $10.70, and for 2026, it has been increased to $11.60 from $11.57. This acquisition is anticipated to enhance the bank’s growth prospects beyond Quebec, although RBC Capital has not changed its price target of Cdn$134.00. Meanwhile, Barclays (LON:BARC) has downgraded the National Bank of Canada’s stock from Overweight to Equalweight, despite raising the price target to Cdn$140.00. This downgrade is attributed to the bank’s strong recent market performance and high valuation metrics, as well as potential integration risks associated with the Canadian Western Bank acquisition. National Bank’s shares are currently valued at a price-to-book ratio of 2.1 times and a price-to-earnings ratio of 12.5 times, both above the averages of its peers. These developments highlight the bank’s strategic moves and financial performance, despite the challenges posed by its recent acquisition.

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