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.
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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.