In a new report, Barclays analyst John Aiken explained why Canadian bank investors need to start facing the harsh reality that Q1 performance will likely be weak. Barclays has reduced its earnings estimates and price targets for most banks and believes that Q1 numbers will fall well short of previous consensus forecasts.
“As declining oil and the Canadian dollar begin to weigh on consumer confidence, we believe that meeting 2015 profitability levels would be an exemplary but exceedingly difficult result,” Aiken explained.
With commodity prices slumping and the Canadian dollar weak, real estate has been the lone bright spot for many Canadian banks, but Aiken believes even the housing market may soon reach a turning point. “With concerns of a slowdown to the housing market ever present, incremental stress to an already weak economy could still be forthcoming," he noted.
Most Canadian banks are trading at earnings multiples well short of their historical averages, and Aiken likes their hefty 4.9 percent dividend. However, Barclays remains cautious.
The firm maintains Underweight ratings on Bank of Montreal (USA) BMO, Canadian Imperial Bank of Commerce (USA) CM, Royal Bank of Canada RY and Toronto-Dominion Bank TD.
Disclosure: The author holds no position in the stocks mentioned.
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