Daily roundup of research and analysis from The Globe and Mail’s market strategist Scott Barlow
RBC Capital Markets analyst Darko Mihelic published his quarterly Canadian Banks Chart Book,
“In Q2/24, core EPS for the large Canadian banks under our coverage decreased approximately 2% quarter-over-quarter but increased 0.3% year-over-year on average. Results were affected by loan losses (though it was not surprising) while wealth and capital markets earnings were generally stronger than we expected. On average, we expect core EPS will grow 4% in 2024 (compared to a 9% decline in 2023), then improve to 7% and 10% growth in 2024 and 2025, respectively. We saw signs of credit quality deterioration among the large Canadian banks this quarter. The average total PCL [provisions for credit losses] ratio was 0.42%, up 3 bps QoQ and 14 bps YoY (excluding BMO’s Bank of the West initial PCL in Q2/23). Impaired PCLs increased 3% QoQ to $3.7 billion, mainly reflecting BMO’s 39% QoQ increase to $658 million, which had highest QoQ increase in the group in Q2/24. We assume elevated impaired PCLs will peak in H2/25 for all the banks we cover … As of June 14, the Canadian bank index traded at 10.4x on a forward P/E basis, above its longterm historical average, but slightly below its 10-year average of 10.8x. On a P/B basis, the Canadian bank index traded at 1.38x, below the 10-year average of 1.66x”
Mr. Mihelic has outperform ratings on Bank of Montreal and TD Bank.
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Citi U.S. equity strategist Scott Chronert raised his 2024 S&P 500 target almost entirely because of large cap technology stocks,
“We are lifting our S&P 500 year-end ‘24 target to 5600 while initiating mid- and full-year ‘25 projections of 5700 and 5800, respectively. Our full year earnings estimate is increased to $250 from a long-standing above-consensus $245 estimate. For ‘25, we initiate a $270 estimate. Inherent in these targets is an assessment of three influences: NVDA, other Mag 7 stocks, and the remainder of the index … The weighting effect of the mega cap growth cohort is exerting an outsized influence on index price action. As a result, traditional macro-determined target setting seems inappropriate … The +14.6% ytd index return can be broken into three components: NVDA (4.1%), remainder of Mag 7 (5.1%), and the “other 493″ (5.4%). The first two components have shown ongoing positive revisions to ‘24 earnings estimates. The “other 493″ is set up for 6% EPS growth but has not demonstrated a positive inflection to that growth rate recently”
In Monday’s newsletter, I noted BofA Securities analysis concluding that market breadth is not historically indicative of market peaks but as an investor I wish there were more ex-technology stocks with higher growth rates.
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BMO senior economist Sal Guatieri described mediocre domestic profit growth,
“Due to a soggy economy and sagging productivity, Canadian corporate profits have fallen 15% in the past year to Q1, shedding much of their earlier resource-driven boom. But thanks to a low-valued currency and strong population growth, earnings have still averaged 5.0% annualized growth in the past five years and are 27.6% above pre-pandemic levels. Still, this performance is less than half that of U.S. corporations (11.7% and 58.7%), with big-name tech firms adding support. A turnaround in profitability would help spur a recovery in business investment and stem the upturn in joblessness”
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Diversion: “50 Years Ago in Photos: A Look Back at 1974″ – The Atlantic