Jefferies Says Canadian Banks Over-Valuing Future Growth And Upside
Canadian bank shares are over-valuing future growth and potential upside, said Jefferies.Except for Scotiabank (BNS.TO) and EQB (EQB.TO), all Canadian Banks are trading at an NTM P/E valuation above their respective historical peaks since 2005, Jeffries director of research John Aiken wrote.Bank ROEs currently average 14.6%, compared with their historical average of 15.4%. Aiken found that near-to-medium ROE is currently the strongest driver of relative valuations, rather than EPS growth.Consensus estimates are forecasting two-year EPS CAGR of 10%-15%, which is twice as high as the historical average. Even if EPS growth materializes as expected, current valuation suggest that share prices would need to fall over the next 12 months to return to historical levels, he added.According to Aiken, "Assuming that consensus growth estimates materialize and that the second 12-month EPS estimates are unchanged, Canadian Banks share price would fall 10%-30% to return to historical valuation."Price: $247.52, Change: $-5.72, Percent Change: -2.26%
