Canadian Western Bank (TSX: CWB), the tenth largest bank in Canada in terms of total assets, announced fourth-quarter earnings on December 3 and its stock has fallen more than 10% in the trading days since. The stock has now fallen nearly 20% year-to-date and it is more than 28% below its 52-week high of $43.30 reached back in August, so let’s take a closer look at the results to determine if this sell-off represents a long-term buying opportunity.
Analyzing the fourth-quarter report
Here’s a breakdown of CWB’s fourth-quarter earnings results compared to what analysts had expected it to report and its results in the same period a year ago:
| Metric | Reported | Expected | Year-Ago |
| Earnings Per Share | $0.73 | $0.67 | $0.65 |
| Revenue | $159.54 million | $159.14 million | $150.96 million |
Source: Financial Times
Canadian Western’s adjusted earnings per share increased 12.3% and its adjusted revenue increased 5.7% compared to the fourth-quarter of fiscal 2013. The company’s strong earnings per share growth is a direct result of net income attributable to shareholders rising 14% to a record $58.2 million, while the strong revenue growth is primarily due to a 6.6% increase in net interest income to $130.77 million.
Here’s a quick summary of eight other important statistics and ratios from the report:
- Total assets increased 11.3% to $20.61 billion compared to $18.51 billion in the year-ago period.
- Total loans increased 12.5% to $17.51 billion compared to $15.57 billion in the year-ago period.
- Total deposits increased 11.1% to $17.37 billion compared to $15.63 billion in the year-ago period.
- Net interest margin of 2.56% compared to 2.72% in the year-ago period.
- Efficiency ratio of 47.2% compared to 45.5% in the year-ago period.
- Return on equity of 15% compared to 14.9% in the year-ago period.
- Return on assets of 1.12% compared to 1.11% in the year-ago period.
- Book value per share increased 11.9% to $19.52 compared to $17.45 in the year-ago period.
Lastly, Canadian Western provided its outlook on fiscal 2015, calling for the following performance compared to fiscal 2014:
- Earnings per share growth in the range of 5%-8%.
- Loan growth in the range of 10%-12%.
- Efficiency ratio of 47% or less.
- Return on equity in the range of 14%-15%.
- Return on assets in the range of 1.07%-1.12%.
Should you be a buyer of Canadian Western today?
Canadian Western Bank is the tenth largest bank in Canada and double-digit loan growth led it to a great performance in the fourth quarter. The company reported a strong 12.3% growth in earnings per share and 5.7% growth in revenue, both of which surpassed analysts’ expectations, but its stock has not responded positively, falling more than 10% in the days since the release.
I do not think the sell-off in Canadian Western shares is warranted, especially since its stock now trades at some of the most inexpensive valuations in the industry, including a miniscule 1.6 times its book value per share and only 10.6 times fiscal 2015’s earnings estimates. In addition, the company announced a 5% increase in its quarterly dividend to $0.21 per share, giving it a very healthy 2.7% yield at current levels.
With all of this information in mind, I think long-term investors should take a closer look at Canadian Western Bank and consider initiating positions on any further weakness in the days ahead.
