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Why Canadian Western Bank Rallied Over 4% Last Week

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.

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*returns as of 5/30/17

Fool contributor Joseph Solitro has no position in any stocks mentioned.

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