Bank of Quebec was upgraded and Royal Bank of Canada was hit with a downgrade, following a latest round of earnings within the Canadian banking sector.
Mario Mendonca at TD Securities raised his rating on Scotiabank to purchase from hold after its first quarter earnings arrived slightly above expectations.
The analyst noted the financial institution reported higher energy-related credit losses, but overall, there have been keep surprises away normally indicate.
Mendonca’s upgrade can also be according to estimates that suggest Scotiabank is trading in a seven percent discount towards the banking peers.
“Historically, the bank’s stronger growth and premium valuation are actually driven by consistent earnings along with a strong international segment,” he said.
The analyst noted that Scotiabank has produce healthy gains in international loans and incredibly strong fee income growth in the final two quarters.
He also anticipates the financial institution will produce near industry-leading domestic retail earnings growth.
Mendonca hiked his price target round the stock to $66 from $62.
Meanwhile, RBC was cut to carry from buy since it posted what Mendonca considers the “big surprise” in retail banking this quarter.
RBC saw earnings growth of just 0.9 percent, and produced the weakest development in the sector for that second straight quarter.
Trimming his price target round the stock to $78 from $80, Mendonca noted he expected RBC would re-assert itself in domestic retail banking this year, particularly if it found loan growth and operating leverage.
“Coming out of the quarter, we’re concerned that RBC is constantly lag regarding margins (rates remaining low impacting deposit margins) and fee growth,” the analyst said.
He added the downgrade also reflects RBC’s higher below investment grade coal and oil exposure, and make contact with with capital markets earnings, which are apt to be volatile in 2016.
