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:
|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.
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This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.
Fool contributor Joseph Solitro has no position in any stocks mentioned.