Why Laurentian Bank of Canada Is up Over 1%

Laurentian Bank of Canada (TSX:LB) is up over 1% following its Q3 earnings release. Can the rally continue? Let’s find out.

| More on:
The Motley Fool

Laurentian Bank of Canada (TSX:LB), one of the largest financial institutions in eastern Canada, announced its third-quarter earnings results this morning, and its stock has responded by rising over 1% in early trading. Let’s break down the quarterly results and the fundamentals of its stock to determine if it could continue higher from here and if we should be long-term buyers today.

A very strong quarter of top- and bottom-line growth

Here’s a quick breakdown of 10 of the most notable financial statistics from Laurentian Bank’s three-month period ended on July 31, 2017, compared with the same period in 2016:

Metric Q3 2017 Q3 2016 Change
Net interest income $157.71 million $147.99 million 6.6%
Other income $90.30 million $81.09 million 11.4%
Total revenue $248.00 million $229.08 million 8.3%
Adjusted net income $59.91 million $46.07 million 30%
Adjusted diluted earnings per share (EPS) $1.63 $1.37 19%
Balance sheet assets $45,212 million $40,298 million 12.2%
Loans and acceptances $34,917 million $32,043 million 9.0%
Deposits $28,232 million $26,903 million 4.9%
Book value per share $50.54 $48.23 4.8%
Adjusted return on common shareholders’ equity 13.0% 11.4% 160 basis points

Should you buy in to the rally? 

It was a phenomenal quarter overall for Laurentian Bank, and it posted a fantastic performance in the first nine months of 2017, with its revenue up 7.3% to $728.44 million, its adjusted net income up 20.4% to $164.27 million, and its adjusted diluted EPS up 5.4% to $4.46. The results also crushed the consensus estimates of analysts, which called for adjusted diluted EPS of $1.49 on revenue of $246.78 million.

With all of this being said, I think the market has responded correctly by sending Laurentian Bank’s stock higher, and I think it still represents a great long-term investment opportunity for two fundamental reasons.

First, it’s still wildly undervalued. Laurentian Bank’s stock still trades at just 9.3 times fiscal 2017’s estimated EPS of $5.83 and only 8.7 times fiscal 2018’s estimated EPS of $6.25, both of which are very inexpensive compared with its five-year average price-to-earnings multiple of 11.7. These multiples are also inexpensive given its current earnings-growth rate and its estimated 6.3% long-term earnings-growth rate.

Second, it has one of the banking industry’s best dividends. Laurentian Bank pays a quarterly dividend of $0.62 per share, equal to $2.48 per share annually, which gives its stock a rich 4.55% yield. Investors must also note that its recent dividend hikes, including its 1.6% hike in May, have it positioned for 2017 to mark the 10th consecutive year in which it has raised its annual dividend payment, and it has a target dividend-payout range of 40-50% of its adjusted net income, so I think its consistently strong growth will allow this streak to continue for another decade at least.

With all of the information provided above in mind, I think Foolish investors should consider initiating long-term positions in Laurentian Bank today with the intention of adding to those positions on any significant pullback in the future.

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 has no position in any of the stocks mentioned.

More on Dividend Stocks

You Should Know This
Dividend Stocks

How to Convert a $300 Monthly Investment Into $338 in Monthly Income

If you want a certain amount in monthly passive income, invest a similar amount today and leave the rest to…

Read more »

Increasing yield
Dividend Stocks

3 Income Stocks With Big Yields to Consider in April 2024

If you haven’t yet made your March investments, here are three income stocks to buy the dip and lock in…

Read more »

Senior Man Sitting On Sofa At Home With Pet Labrador Dog
Dividend Stocks

RRSP Investors: Don’t Miss Out on This Contribution Hack!

This hack has so many benefits for you -- not just when you put it in your RRSP but for…

Read more »

A red umbrella stands higher than a crowd of black umbrellas.
Dividend Stocks

Passive Income: 2 Safe Dividend Stocks to Own for the Next 10 Years

Dividend stocks such as Manulife and Fortis can help you generate a stable and recurring passive-income stream.

Read more »

Young woman sat at laptop by a window
Dividend Stocks

3 Dividend Stocks Everyone Should Own for the Long Haul

For investors looking for top-tier dividend stocks to buy and hold for the long term, here are three of my…

Read more »

Payday ringed on a calendar
Dividend Stocks

3 Dividend Stocks That Pay Me More Than $54.57 Per Month

These three dividend stocks have done me well over the years, so let's look at how much I've gotten in…

Read more »

Golden crown on a red velvet background
Dividend Stocks

Dividend Royalty: 3 Fabulous Stocks to Buy Now for Decades of Passive Income

Rogers Communications stock and Canadian Natural Resources stock could pay you dividends for decades to come.

Read more »

Dividend Stocks

The Top Canadian REITs to Buy in April 2024

For growth and dividends this April, look to these two REITs that have quite the promising present as well as…

Read more »