On Tuesday, RBC Capital Markets maintained its Sector Perform rating on National Bank of Canada (TSX:NA:CN) (OTC: OTC:NTIOF), with a steady price target of Cdn$134.00. The firm’s analyst updated their financial model to account for the earlier than expected completion of the acquisition of Canadian Western Bank (TSX:CWB), which is now set to close on February 3, 2025, instead of the previously anticipated date of May 1, 2025.
The bank, currently trading at a P/E ratio of 13.5 and offering a 3.5% dividend yield, appears undervalued according to InvestingPro analysis.Want deeper insights? InvestingPro subscribers have access to 12 additional expert tips and comprehensive financial metrics for National Bank of Canada.
As a result of the updated acquisition timeline, RBC Capital’s core earnings per share (EPS) estimates for National Bank of Canada have been adjusted. The EPS forecast for the year 2025 has been increased to $10.76 from $10.70, and the estimate for 2026 has been raised to $11.60 from $11.57.
The analyst expects that National Bank of Canada will achieve a Common Equity Tier 1 (CET 1) ratio of 13.5% in the second quarter of 2025, aligning with the bank’s own guidance of 13% or higher. This ratio is projected to further increase to 13.7% by the fourth quarter of 2025.
RBC Capital views the acquisition of Canadian Western Bank by National Bank of Canada as a mild positive, particularly as it is expected to enhance the bank’s growth prospects outside its traditional market in Quebec. Despite the favorable outlook on the acquisition’s impact on growth, the price target for National Bank of Canada’s shares has been left unchanged.
In their commentary, the analyst from RBC Capital expressed a continued belief in the Sector Perform rating, indicating that while the acquisition may provide some growth benefits, it does not warrant a change in the current valuation of National Bank of Canada’s stock.
In other recent news, National Bank of Canada (NBC) demonstrated a strong financial trajectory, reporting robust third-quarter results with significant earnings per share (EPS) of $2.68 and a return on equity (ROE) of 17%. These positive outcomes are credited to the bank’s diverse earnings mix and solid credit profile. Furthermore, NBC announced its acquisition of Canadian Western Bank (CWB), a move that introduces potential integration risks but is seen as strategically beneficial.
Barclays (LON:BARC) recently downgraded NBC’s stock from Overweight to Equalweight, despite raising the price target, in response to the bank’s high valuation metrics and the potential risks associated with the CWB integration. Conversely, Jefferies upgraded NBC’s stock from a Hold to a Buy rating, citing the anticipated benefits of the CWB acquisition, which is expected to close in 2025.
Other firms, including Scotiabank (TSX:BNS), RBC Capital, and BMO Capital Markets, have also revised their outlooks on NBC following the bank’s strong quarterly performance, all raising their price targets. Despite potential economic challenges, NBC’s credit portfolio remains resilient, with provisions for credit losses of $149 million and robust total allowances for credit losses exceeding $1.5 billion.
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