Laurentian Bank of Canada (TSX: LB), the ninth largest bank in Canada in terms of total assets, released fourth-quarter earnings on December 10 and the results came in just shy of analysts’ expectations. In response to the earnings release and weakness in the overall market, the company’s stock has fallen more than 5% and it now sits over 8% below its 52-week high of $51.92 reached back in July. Let’s take a closer look at the results and the outlook going forward to determine if we should use this weakness as a long-term buying opportunity.
The weaker-than-expected results
Here’s a summary of Laurentian Bank’s fourth-quarter earnings compared to what analysts had expected and its results in the fourth quarter of fiscal 2013.
|Earnings Per Share||$1.39||$1.41||$1.26|
|Revenue||$221.42 million||$221.62 million||$215.53 million|
Source: Financial Times
Laurentian Bank’s earnings per share increased 10.3% and its revenue increased 2.7% compared to the same period a year ago. These results were driven by net income increasing 10.6% to $42.59 million and revenue growth of 5% in the company’s largest segment, Personal & Commercial Banking, to $153.81 million.
Here’s a quick breakdown of six other highly important statistics and updates from the quarterly report:
- Total assets increased 2.8% to $34.85 billion compared to $33.91 billion in the year-ago period.
- Total loans and acceptances increased 0.7% to $27.43 billion compared to $27.23 billion in the year-ago period.
- Total deposits increased 2.5% to $24.52 billion compared to $23.93 billion in the year-ago period.
- Net interest margin of 1.61% compared to 1.66% in the year-ago period.
- Return on common shareholders’ equity of 12.2% compared to 11.7% in the year-ago period.
- Book value per share increased 6.3% to $45.89 compared to $43.19 in the year-ago period.
Following the breakdown of its fourth-quarter earnings results, Laurentian Bank provided outlook on fiscal 2015, calling for the following:
- Earnings per share growth in the range of 5%-10%.
- Strong organic growth in its higher-margin commercial business.
- Efficiency ratio of 68% or less.
- Stable margins from 2014 levels.
Lastly, Laurentian Bank announced a 3.8% increase in its quarterly dividend to $0.54 per share. This increase brings the company’s annual dividend to $2.16 per share and gives its stock a yield of approximately 4.5% at current levels.
Should you buy shares of Laurentian Bank today?
Strong growth in Laurentian’s personal and commercial banking segment led it to a strong fourth-quarter performance. However, the company’s earnings per share and revenue results both fell just shy of analysts’ expectations, and this, paired with overall weakness in the market, has led to its stock falling more than 5% in the time since.
I think the weakness in Laurentian Bank’s stock represents a long-term buying opportunity, because at current levels, it trades at just 8.4 times fiscal 2015’s earnings per share estimates and an incredibly low 1.04 times its book value per share, and it has the added buffer of a 4.5% dividend yield. With all of this information in mind, I think long-term investors should consider Laurentian Bank one of the best investment opportunities in the financial sector today.
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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.