National Bank of Canada (TSX: NA), the seventh largest bank in Canada in terms of total assets, announced first-quarter earnings before the market opened on February 25, and its stock responded by rising over 3% in the trading session that followed. Let’s take a thorough look at the quarterly results to determine if we should consider buying into the rally, or if we should wait for it to subside.
Breaking down the results
Here’s a summary of National Bank’s first-quarter earnings compared to what analysts had expected and its results in the same period a year ago.
|Earnings Per Share||$1.14||$1.12||$1.09|
|Revenue||$1.46 billion||$1.44 billion||$1.37 billion|
Source: Financial Times
National Bank’s adjusted earnings per share increased 4.6% and its revenue increased 6.5% compared to the first quarter of fiscal 2014. The company’s solid earnings per share growth can be attributed to adjusted net income increasing 6.8% to $410 million, led by 22.8% growth to $178 million in its Financial Markets segment, and 9.2% growth to $83 million in its Wealth Management segment.
Its strong revenue growth can be attributed to revenues rising in all three of its major segments, including 5% growth to $691 million in its Personal & Commercial Banking segment, 14.5% growth to $418 million in its Financial Markets segment, and 6.5% growth to $345 million in its Wealth Management segment.
Here’s a quick breakdown of 10 other highly important statistics and ratios from the report compared to the year-ago period:
- Total assets increased 4.4% to $214.47 billion
- Total deposits decreased 0.5% to $119.24 billion
- Total loans and acceptances increased 1.1% to $107.32 billion
- Total assets under administration increased 12.4% to $312.7 billion
- Non-interest income increased 4% to $735 million
- Net interest income increased 9.2% to $724 million
- Net interest margin contracted five basis points to 2.2% in the Personal & Commercial Banking segment
- Adjusted efficiency ratio contracted 20 basis points to 58.7%
- Adjusted return on common shareholders’ equity contracted 130 basis points to 17.5%
- Book value per share increased 11.2% to $26.33.
National Bank also announced that it would be maintaining its quarterly dividend of $0.50 per share. The next payment will come on May 1 to shareholders of record at the close of business on March 30.
Should you be a long-term buyer of National Bank?
National Bank of Canada is the seventh largest bank in Canada. Increased demand for its products and services led it to a better-than-expected fourth-quarter performance, and its stock responded accordingly by rising over 3%.
I think National Bank’s stock represents a great long-term investment opportunity, even after the 3% rally, because it still trades at low valuations and pays a bountiful dividend.
First, National Bank’s stock trades are at very inexpensive valuations, including just 10.5 times analysts’ estimated earnings per share of $4.62 for fiscal 2015, only 9.9 times analysts’ estimated earnings per share of $ 4.91 for fiscal 2016, and a mere 1.8 times its book value per share of $26.33.
Second, National Bank pays an annual dividend of $2.00 per share, which gives its stock a yield of approximately 4.1% at current levels. I think this makes it qualify as both a value and dividend investment opportunity today.
I think National Bank of Canada represents one of the best investment opportunities in Canada’s financial industry today. Foolish investors should take a closer look and consider initiating long-term positions.