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.
