Why Canadian Western Bank Rallied Over 4% Last Week

Canadian Western Bank (TSX:CWB) watched its stock rally over 4% last week thanks to 5.6% spike following its Q4 earnings release. Should you buy now?

| More on:

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.

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.

More on Investing