EQB Stock Has a Real Chance of Turning $500 Into $1,000 by 2030

EQB is an undervalued dividend paying TSX bank stock that should more than double in market cap by the end of 2030.

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Valued at a market cap of $3.3 billion, EQB (TSX:EQB) is one of the fastest-growing banking companies in Canada. In the last decade, EQB stock has risen by 193%. After adjusting for dividends, total returns are closer to 244%. Comparatively, the TSX index has returned “just” 120% in this period after accounting for dividends.

Despite its outsized gains, EQB also offers shareholders a dividend yield of 2%, given its annual payout of $1.68 per share. Let’s see if EQB can continue to beat the broader markets in 2024 and beyond.

An overview of EQB stock

EQB is a Canada-based financial services company with $119 billion in assets under management. It offers banking services through Equitable Bank, a wholly-owned subsidiary and the seventh-largest bank by assets. EQB also provides wealth management services through ACM Advisors, a majority-owned subsidiary specializing in alternative assets.

With more than 600,000 customers and six million credit union members, EQB stock is positioned to deliver inflation-beating returns to shareholders. Let’s see why.

A strong performance in Q1 of fiscal 2024

In the fiscal first quarter (Q1) of 2024 (which ended in January), EQB reported an adjusted ROE (return on equity) of 15.6%. Despite a challenging macro backdrop, EQB increased sales by 27% year over year to $299 million and net income by 17% to $108 million.

The mid-cap bank attributed its strong performance in Q1 to growth in loans under management, margin expansion, customer growth, risk management, and higher non-interest revenue.

EQB is a pure-play digital bank in Canada and attracts customers due to its high-interest savings account. Similar to other challenger banks, EQB offers a widening portfolio of products and solutions.

Its personal banking business now manages $1.6 billion in total assets, up from $1 billion in fiscal Q4 of 2022. The ACM business marks EQB’s entry into wealth and alternative asset management, diversifying the company’s revenue base and securing a new source of non-interest income.

EQB aims to double its high-margin wealth management business in the next five years. EQB’s non-interest revenue accounts for 14% of total sales in Q1, up from just 7% in Q4 of 2022. It expects non-interest sales to account for 15% of revenue by fiscal 2027.

Is EQB stock undervalued?

Analysts tracking EQB stock expect adjusted earnings to rise by 22.7% to 11.53 per share in fiscal 2024. Its earnings are forecast to widen by 19.5% annually in the next five years. Priced at 7.6 times forward earnings, EQB stock is really cheap.

Given its earnings forecast, the company should end fiscal 2028 with earnings of $22.5 per share. If the stock is priced at 10 times trailing earnings, EQB should trade at $225 per share in April 2029, indicating an upside potential of more than 150% from current levels.

In addition to capital gains, investors are poised to benefit from a regular dividend payout. In the last four quarters, its free cash flow totalled $108 million, while EQB paid shareholders roughly $55 billion via dividends, indicating a payout ratio of 50%.

In the last 20 years, EQB stock has raised dividends by 14% annually, enhancing the effective yield over time.

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 Aditya Raghunath has no position in any of the stocks mentioned. The Motley Fool recommends EQB. The Motley Fool has a disclosure policy.

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