Feb 18, 2022
3 buys, 3 holds: Big Six banks pick up new analyst coverage
By Noah Zivitz
Canadian banks to report next week
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Analyst Mike Rizvanovic, who previously covered Canada's banks for Credit Suisse, has resumed coverage of the sector for Stifel, with a split view on the Big Six.
Rizvanovic put buy ratings on Bank of Montreal, Bank of Nova Scotia, and National Bank of Canada. He recommends clients hold if they already own shares in Royal Bank of Canada, Toronto-Dominion Bank, and Canadian Imperial Bank of Commerce.
For the sector as a whole, he said conditions are improving with a "notable tailwind" coming from higher interest rates, while he said the market hasn't fully priced in the potential for more funds to be released from loan-loss reserves. He added that the banks' excess capital is "an added benefit" that could go toward share buybacks and potential M&A opportunities.
Rizvanovic said he sees the highest possible total returns (17 per cent) on BMO and Scotia. His price targets on those banks are $170 and $104, respectively.
He lauded BMO's U.S. footprint, particularly after its US$16.3-billion acquisition of Bank of the West, which he said presents "material upside." He attributed his bullish view on Scotia to the potential for a "strong recovery" in the bank's international operations.
Of all the banks he covers, Rizvanovic indicated TD Bank presents the least upside for investors. He put a $109 price target on the stock, implying approximately five per cent total return potential. While he said the bank is in an "enviable" position with its capital levels and sensitivity to higher interest rates, he indicated his caution on the name comes down to two factors. Firstly, the risk of a "meaningful" drop in fee-based revenue, particularly in the U.S. where the banking industry has faced scrutiny on overdraft fees. Secondly, Rizvanovic said TD has suffered from "poor execution" in its bread and butter personal and commercial banking business in Canada.
"With [TD] already trading at a group-high multiple, we see less relative upside for its shares over the medium term, although we believe an accretive M&A transaction remains a potential catalyst for the stock," he wrote.
