Daily roundup of research and analysis from The Globe and Mail’s market strategist Scott Barlow
BMO analyst Sohrab Movahedi predicts somewhat muted profit results for domestic banks as sector earnings reports begin but also sees dividend increases,
“We are expecting 2% higher revenue driven by higher net interest income. The combination of robust loan growth, as suggested by the latest OSFI monthly filings, and eased margin pressure is expected to support a high single-digit spread revenue growth. A partial offset to higher spread revenue is lower year-over-year fee-based income (e.g., debt/equity new issue and wealth to name two). The low-single-digit revenue growth, coupled with well-managed expenses should result in 2% y/y growth in pre-tax pre-provision income and positive operating leverage in Q2. The bank index has been a noticeable underperformer in the past three months, with a total loss of ~11% relative to the S&P/TSX’s total loss of ~3%. The index is currently trading at 10.0x our 2023E EPS, the low end of the historical range of 10-12x. While it would not be surprising to us if the depressed bank valuations persisted in the shorter term, we believe each incremental data point (whether it be earnings results, inflation readings, or central bank rate decisions) should, on balance, be additive to investor confidence and supportive of a re-rating towards the mid-point of the historical P/E range. While market worries are valid, we believe that the fundamentals of the Canadian banks remain intact. At current valuations, the Canadian bank index is trading at an attractive dividend yield of ~4.1% … We may see quarter-over-quarter dividend increases of 2%, 3%, 4% and 4% at CM, NA, RY, and LB, respectively. BNS, CM, NA, and CWB shares are rated Outperform.”
Scotiabank analyst Orest Wowkodaw sees an attractive risk/reward setup for copper miners,
“Escalating global macroeconomic concerns from COVID-19 lockdowns in China, rising interest rates, and higher energy prices, along with heightened geopolitical risk tension from Russia’s war in Ukraine, have all placed significant downside pressure on most commodity prices, including copper (Cu). While we clearly see growing downside risks to our near-term copper consumption expectations, we note that the supply side also remains under significant pressure due to relatively low visible inventories (~9 days), growing risks to Russian supply (~4% of global output), ongoing fiscal uncertainty in Chile and Peru (a combined ~36% of global output), continuing supply-chain constraints, and rising inflation (impacting both opex and capex). Overall, we believe that copper prices >$4.00/lb remain well supported despite heightened demand uncertainty, particularly given the large projected structural market shortage ahead … The Q1/22 reporting season was a relatively painful one for the mining equities … Despite these negative headlines, our 2022E-2024E EBITDA estimates for the mid- and large cap miners decreased by an average of only 1%-2% ... TECK [Teck Resources] is our top pick, while FM [First Quantum] and CS [Capstone Mining Corp.] remain our other preferred picks for Cu exposure; we also recommend CMMC, ERO, FCX, FIL, FOM, HBM, IVN, SLS, and TRQ.”
“Scotiabank analyst sees attractive risk/reward setup for copper miners” – (research excerpt) Twitter
Credit Suisse U.S. equity strategist Jonathan Golub was among the most bullish pundits as 2022 began. He has been surprised by market weakness in a period of strong earnings growth,
“While the median company has seen their stock price fall -24.4% since its peak, the median P/E multiple fell -27.5%. This difference is explained by a healthy 3.3% increase in projected EPS. On a median basis, all 11 sectors have experienced an improvement in their earnings prospects. This disparity is most extreme for Tech shares where the median valuation has fallen -35.7%, while earnings prospects have improved by 8.0%... Communications, Discretionary, and Tech names are down the most, -40.2%, -39.1% and -30.9%, having peaked in September, November and December.”
Mr. Golub provided a list of 50 stocks that are down the most even though the earnings and profit outlook remain robust. The top of the list, in order of size of sell-off is Penn National Gaming, IPG Photonics, Ceridian, Generac, DexCom, Twitter, NVIDIA, Paycom Software, Charles River Labs Intl, PVH, Walt Disney, Skywork Solutions, VF, Salesforce, IDEXX Laboratories Inc., Qorvo, and Aptiv.
“CS: Top Price Drawdown with Positive EPS Change " – (table) Twitter
Diversion: “A Guide to The Atlantic’s Coverage of Guns in America” – The Atlantic
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