Canadian bank stocks show uneven post-crisis recovery | Trading ...

Canadian bank stocks have at least doubled since hitting crisis lows on March 9, 2009, outpacing a 60% gain in the S&P/TSX Composite index, but long-term investors in the financial sector haven?t necessarily fared that well.

Despite the recovery, several names are still well off their pre-crisis highs.

Stonecap Securities analyst Brad Smith crunched the numbers and found that Canadian Western Bank is up 257% since its 2009 low, outpacing the next-best performer by a wide margin as Toronto-Dominion Bank registered a 143% recovery.

CIBC?s 99.7% gain was the lowest during this period. It is also the Canadian bank furthest away from its pre-crisis high, trading about 30% lower than where it was in May 2007. Bank of Montreal is next, trading nearly 16% below its April 2007 peak.

National Bank of Canada, one of three domestic banks trading above its pre-crisis high, is currently 12.1% higher than where it was in December 2006. TD ranks second, up 10.7% from its highs in October 2007.

Mr. Smith noted that domestic banks hit their highs in early 2007, but the S&P/TSX Composite continued to advance for another year before peaking in June 2008.

The analyst also looked at valuations in the sector and found that while forward EPS expectations have sharply risen from pre-crisis levels, P/E multiples have gone in the opposite direction.

For example, TD Bank leads the way with current forward EPS of $8.12, up from $5.99 prior to the financial crisis. However, its forward P/E of 10.4 is well off a pre-crisis level of 12.8.

The valuation gap is even greater for others such as Canadian Western Bank, which is trading at a forward P/E of 11.3 versus 18 prior to the crisis.

?While providing a basis for optimism that valuations can rise from current levels, the downward migration of multiples also reflects growing awareness of the very real challenges, in form of intensified regulation and slowing economic growth potential that have emerged in the post-crisis banking world,? Mr. Smith told clients.

Source: http://business.financialpost.com/2013/07/04/canadian-bank-stocks-show-uneven-post-crisis-recovery/

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