Canadian Western Bank (TSX: CWB), one of Canada’s largest diversified financial services organizations, watched its stock rally over 4% last week thanks to a 5.6% surge that started on Thursday following its fourth-quarter earnings release. Let’s break down the earnings release and the fundamentals of its stock to determine if we should be long-term buyers today.
The results that ignited the rally
CWB released its fourth-quarter earnings results before the market opened on Thursday, which ignited a 5.6% rally from the market close on Wednesday to the close on Friday. Here’s a breakdown of 10 of the most notable financial statistics from the three-month period ended October 31, 2017, compared with the same period in 2016:
| Metric | Q4 2017 | Q4 2016 | Change |
| Net interest income on a taxable equivalent basis | $170.99 million | $149.70 million | 14.2% |
| Non-interest income | $24.63 million | $19.13 million | 28.8% |
| Total revenue on a taxable equivalent basis | $195.62 million | $168.83 million | 15.9% |
| Common shareholders’ net income | $60.83 million | $47.83 million | 27.2% |
| Adjusted cash earnings per share (EPS) | $0.74 | $0.59 | 25.4% |
| Assets | $26,447.45 million | $25,222.55 million | 4.9% |
| Loans | $23,229.24 million | $21,961.35 million | 5.8% |
| Deposits | $21,902.98 million | $21,194.55 million | 3.3% |
| Assets under management | $2,114.86 million | $1,924.18 million | 9.9% |
| Book value per share | $24.82 | $23.58 | 5.3% |
Was the rally warranted and can it continue?
It was a fantastic quarter overall for CWB, and it capped off a great year for the bank, in which its revenue on a taxable equivalent basis increased 10.2% to $728.9 million, and its adjusted cash EPS increased 16.4% to $2.63 compared with fiscal 2016. With these strong results in mind, I think the market responded correctly by sending CWB’s stock higher, and I think it still represents an attractive long-term investment opportunity for two fundamental reasons.
First, it’s undervalued. Even after last week’s rally, CWB’s stock trades at just 14.4 times fiscal 2017’s adjusted EPS of $2.63, only 12.9 times the consensus analyst estimate of $2.95 for fiscal 2018, and a mere 11.5 times the consensus analyst estimate of $3.29 for fiscal 2019, all of which are inexpensive given its current double-digit percentage earnings-growth rate and its estimated 9.8% long-term earnings-growth rate.
Second, it’s a dividend aristocrat. CWB pays a quarterly dividend of $0.24 per share, equating to $0.96 per share annually, which gives it a solid 2.5% yield. Foolish investors must also note that fiscal 2017 marked the 25th consecutive year in which it has raised its annual dividend payment, and its 4.3% hike in August has it on pace for fiscal 2018 to mark the 26th consecutive year with an increase.
CWB’s stock has risen over 22% since I first recommended it on December 10, 2014, and it has returned about 35% when you include reinvested dividends. I think the stock is still a strong buy today, so take a closer look and consider making it a long-term core holding.
