After Canada's biggest banks finished reporting their fiscal second-quarter earnings earlier in the week, two of the smaller players – Canadian Western Bank and Laurentian Bank of Canada – stepped up to the plate on Thursday, with mixed results. Both hiked their dividends, but Canadian Western emerged as the clear favourite among analysts, and not only because it beat earnings expectations.
Analysts at both TD Newcrest and Desjardins Securities maintained their "buy" recommendations on the stock, but raised their 12-month price targets by a buck. TD's Jason Bilodeau raised his target to $34, while Desjardin's Michael Goldberg raised his to $36.
"With $2-trillion of potential capital spending in Western Canada expected over time, prospects for CWB's growth remain very buoyant," Mr. Goldberg said in a note. "Not only is CWB in the right place to benefit from this growth, but its execution has been strong over time."
"Because of the robust growth in Western Canada, competitive pressures may be reduced," he continued. "More importantly, because CWB does not compete head on with the major banks in much of its business, it is also less affected by competition."
Laurentian didn't get such a rave review after it missed earnings expectations, a result that sent its shares down 4.1 per cent on Thursday. Mr. Goldberg, who held his target price unchanged at $57.50, noted that the bank is showing that it is vulnerable to competition with the bigger banks. The bank's operating expenses rose and its margins narrowed, which led to a year-over-year decline in operating profit.
Mr. Bilodeau trimmed his target price on the stock to $56 from $57.
"We still think Laurentian has made good progress over the past one to two years and has focused on some niche markets/products, which has helped produce good growth off a small base, supporting an improved ROE and productivity," he said.
"That said, the last two quarters have been weak/mixed in our view and it is less clear to us how the bank delivers continued improvement in what appears to be an increasingly soft domestic market."
David Berman