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What to do with the securities of TD Bank, Dialogue Health Technologies and Costco? Here are some recommendations from analysts likely to move prices soon. Note: the author may have a totally different opinion from that expressed by the analysts.
TD Bank (TD, $78.49): Biggest rebound potential, but not without risk
In the midst of the banking crisis in the United States, Scott Chan of Canaccord Genuity sees fit to reduce the target prices of all Canadian banks by 8% because the flight of deposits and the unrealized losses on the balance sheets of American banks pose new challenges for operating in this country and for banking prospects. The average multiple goes from 10.5 to 9.5 times earnings.
Forecasts for the big Canadian banks, the biggest U.S. institutions and the biggest regional banks still call for earnings growth in 2023 and 2024, he says. This outlook looks optimistic as banks become even more picky regarding lending as their own cost of funding rises.
TD Bank and BMO Bank (BMO, $118.83) are the most present in the United States, and as such their share price suffered the most from the bankruptcy of Silicon Valley Bank on March 8. US deposits make up 40% of all deposits at TD Bank and 28% two at BMO Bank.
In addition, TD may have to renegotiate the purchase of the bank First Horizon Corp. (FHN, US$16.13) whose price is 35% lower than the initial offer of US$25 per share of the Toronto bank.
Scott Chan is not entirely ruling out the possibility that regulators will reject the deal or that TD Bank will pull out, although its executives say they remain committed to completing the acquisition.
First Horizon’s deposits had fallen by 10% for two quarters and the failure of three regional banks might accelerate the movement, he also fears.
TD also owns 12% of brokerage and financial services firm Charles Schwab (SCH, US$59.47) and has just joined US investment bank Cowen Group.
For its part, BMO Bank has just acquired Bank of the West.
If banking confidence were to recover in a convincing and lasting way, TD Bank would benefit the most, but if it were the opposite its title would be more punished on the stock market, indicates the analyst to explain the risk-return ratio to be taken into account account investors.
“TD Bank suffered the most from the stock market crisis (13% decline between March 6 and March 20) so its more modest valuation (of 8.3 times the expected profit in 12 months) is the most attractive. among the banks,” adds Scott Chan. This multiple is also 27% lower than its ten-year average.
We have to hope for an economic slowdown or a slight recession to buy bank stocks at the moment, he admits, but buying during downturns is still a good strategy given the solidity of Canadian banks and their 5% dividend. .
“We will soon have a better understanding of the situation when US banks release their first quarter results in mid-April,” he adds.
In the meantime, he recommends buying TD Bank, whose target price has fallen from $104 to $86.50, or 9.2 times the expected profit in 12 months. This multiple is 3% lower than the average than the analyst. Before the crisis of the American regional banks, this bank obtained a capital gain of 5% compared to its rivals.
