Canadian Western Bank (TSX:CWB), one of the 10 largest banking institutions in Canada, has been one of the market’s most disappointing stocks in 2015. It has fallen more than 15% as the TSX Composite Index has returned just under 1%, but I think it has bottomed and could be one of the top performers over the next several years. Let’s take a look at three of the primary factors that could drive its shares higher and why you should be a long-term buyer today.
1. Its strong Q2 earnings results could support a near-term rally
On the morning of June 5 CWB released very strong second-quarter earnings results, but its stock has responded by falling over 1.5% in the trading sessions since. Here’s a breakdown of 10 of the most notable statistics from its report compared with the year-ago period:
- Adjusted common shareholders’ net income increased 4.5% to $54.58 million
- Adjusted cash earnings per share increased 4.6% to $0.68
- Revenue increased 4.2% to $159.91 million
- Net interest income increased 9% to $134.89 million
- Non-interest income decreased 16% to $25.02 million
- Total assets increased 9.7% to $21.52 billion
- Total loans increased 11.1% to $18.56 billion
- Total deposits increased 7.9% to $17.98 billion
- Total assets under management increased 8.4% to $1.91 billion
- Book value per share increased 9% to $20.19
2. Its stock trades at inexpensive forward valuations
At today’s levels CWB’s stock trades at just 10.5 times fiscal 2015’s estimated earnings per share of $2.65 and only 9.8 times fiscal 2016’s estimated earnings per share of $2.84, both of which are very inexpensive compared with its five-year average price-to-earnings multiple of 13.7 and the industry average multiple of 13.2.
I think CWB’s stock could consistently command a fair multiple of at least 13, which would place its shares upwards of $34.25 by the conclusion of fiscal 2015 and upwards of $36.75 by the conclusion of fiscal 2016, representing upside of more than 23% and 32%, respectively, from current levels.
3. It has a 3.2% dividend yield with a track record of increases
CWB pays a quarterly dividend of $0.22 per share, or $0.88 per share annually, giving its stock a 3.2% yield at today’s levels. The company has also increased its dividend for five consecutive years, and 19 times in the last 12 years, making it one of the top dividend-growth plays in the financial sector today.
Is there a place for CWB in your portfolio?
I think Canadian Western Bank could be one of the top performing stocks going forward. Its strong second-quarter earnings results could support a near-term rally, its stock trades a very inexpensive forward valuations, and it has a 3.2% dividend yield with an extensive track record of increasing its annual payment. Foolish investors should take a closer look and strongly consider establishing positions today.
