Major Canadian banks have modestly underperformed the TSX Composite in the year to date as macro concerns such as inflation, housing, geopolitical, and recession fears have continued at the forefront, leading to Canaccord Genuity (TSX:CF) analysts lowering their 4Q earnings forecasts for the financial giants.
In a note to clients previewing the Canadian banking sector’s fourth-quarter results, the analysts wrote that performance of the Big-6 Banks, being the Bank of Montreal (TSX:BMO) Toronto Dominion Bank (TSX:TSX:TD), Canadian Imperial Bank of Commerce (TSX:CM), Royal Bank of Canada (TSX:RY) ), Scotiabank (TSX:BNS) and National Bank (NA), had varied.
They noted BNS, with exposure to international markets such as Pacific Alliance regions, and CM, with the largest Canadian mortgage book, were the clear laggards.
However, the analysts maintained a ‘Buy’ rating for both stocks, with reduced price targets of C$83.50 down from C$86.50 for BNS and C$75 down from C$79 for CM.
They also reiterated their ‘Buy’ rating for BMO with a lowered price target of C$148 down from C$150.50.
NA, RY and TD earned ‘Hold’ ratings, with improved price targets of C$101.50, C$131, and C$95, up slightly from C$100, C$130.50, and C$94.50 respectively.
The analysts wrote that overall they were lowering their group average target prices by 1%, mostly on CM and BNS and slightly positive with NA and TD.
They added that they were revising down their group 4Q and 2022 financial year adjusted earnings per share estimate by about 3%, with most at BNS and CM.
“Currently, the group trades at a price-to-earnings ratio (P/E) of 9.9x (based on consensus estimates), which is slightly below the 5-year historical average of 10.6x,” they wrote.
As such, the analysts said they now forecast 2022 financial year-end and 2023 financial year-end earnings per share growth of 4% and 4%, respectively.
“Heading into financial year-end results, we can envision a ‘kitchen sink’ quarter potentially highlighted by higher-than-expected costs and performing reserve builds,” the analysts concluded.
To “kitchen sink” is when a company announces all of their negative financial news at one time, rather than over an extended period.