Analysts Paul Holden, CFA, Kevin Lai, CPA, CA and Brian Lee of CIBC World Markets Inc. commented in an August 27 research note that Canadian Western Bank's (CWB:TSX) strong Q3/21 financial results support its thesis for classifying the company as an "Outperformer".
The analysts advised that they expect that CWB will continue to deliver strong top-line growth in FY/22 buoyed by growth in lending and an upward trend in net interest margin (NIM). As a result, CIBC mentioned that it is reiterating its "Outperform" rating for the company and has raised its price target by CA$2.00 to CA$44.00 per share based upon higher earnings per share (EPS) estimates. CIBC explained that the CA$44 price target was arrived at by applying an 11-times price earnings (PE) ratio to its FY/22 EPS estimates of CA$3.98.
CIBC stated that it is increasing both its FY/21 and FY/22 adjusted EPS estimates for CWB by 3%. The key drivers in the valuation model are mostly due to higher anticipated net interest income (NII) and higher fee income. The analysts stated that the revised FY/21 estimates for CWB imply a growth in EPS of 25%, compared to CWB management's projections for 20% or above.
The company reported 2.8% y-o-y loan growth in the most recent quarter, which beat CIBC's forecast of 1.7%. CIBC wrote that CWB management's forecast suggests loan growth of between 9-10% in Q4/21 and added that demand for new loans is currently quite strong so it now anticipates FY/22 loan growth of 8%.
CWB indicated that its branch-based deposits were up 4% sequentially in Q3/21 and that low-cost demand deposits increased by 5% which bodes well for NIM. As a result, CIBC stated that its FY/22 modelling calculations assume a four-basis point increase in NIM with NII increases of 10%.
The report noted that though fee income is not presently a major contributor to CWB's total revenues, the company was able to benefit from a 4% sequential quarter-over-quarter increase in fee income attributed mainly to its wealth management business.
The report listed that ranked by market cap, CWB is the seventh-largest bank in Canada with operations centered in Alberta, British Columbia, and Ontario. The financial services company caters primarily to individuals and small- and medium-sized businesses.
CIBC World Markets advised that it rates Canadian Western Bank as an "Outperformer" and is raising its 12–18-month price to CA$44.00 per share, up from its previous target of CA$42.00. The company's shares trade on the Toronto Stock Exchange under the symbol CWB and last closed for trading at CA$36.34/share on September 3, 2021.
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