Before market open today, National Bank of Canada (TSE: NA) (NTIOF), the smallest of the “Big Six” Canadian banks, released its Fiscal Q3-2022 earnings report. Both revenue and earnings per share (EPS) just narrowly beat analysts’ expectations by less than 1% each. Despite this, the stock finished down slightly today, as there were no real surprises regarding its results.
National Bank’s revenue came in at C$2.484 billion compared to the consensus estimate of C$2.465 billion. This represents 8% year-over-year growth. Also, diluted earnings per share (EPS) were C$2.35, down only one penny from last year’s figure of C$2.36, while analysts were expecting C$2.34 per share.
The company has beaten EPS expectations in eight of its past nine quarters, making it a reliable performer. While it’s not ideal that EPS hasn’t kept up with revenue growth (signaling declining profit margins year-over-year), National Bank is holding up much better than Royal Bank of Canada (TSE: RY), which experienced a 15% drop in earnings per share that caused its stock to fall today.
In addition, NA’s return on equity (ROE) came in at 17.7%, which is a relatively high figure among Canadian banks. Nonetheless, it fell 360 basis points (bps) year-over-year.
As mentioned in our RY earnings article linked above, declining profitability levels can be blamed on a worsening economy, causing banks to increase their provisions for loan losses. However, much of this was already factored into earnings expectations.
Lastly, National Bank’s Common Equity Tier 1 (CET1) ratio increased 40 bps year-over-year to 12.8%, and it is still well above the minimum regulatory requirement. The CET1 ratio is calculated by dividing Common Equity Tier 1 (CET1) by risk-weighted assets. It’s a liquidity metric, and NA’s CET1 ratio is solid and almost in line with RY’s ratio of 13.1%.
Is National Bank of Canada Stock a Good Investment?
According to Wall Street, National Bank of Canada is a good investment, earning a Moderate Buy consensus rating based on five Buys, four Holds, and one Sell assigned in the past three months. The average NA stock price forecast of C$104.70 implies 14.6% upside potential.
Insiders are Bullish on National Bank of Canada Stock
Sometimes, looking at insider transactions can give investors an idea of how confident the company’s insiders are. National Bank’s insiders have been buying shares, signaled by the “positive” insider confidence signal, shown in the image below:
Interestingly, in the past three months, there were two Informative Buys from director Yvon Charest, a 4.6-star rated insider on TipRanks. A C$32,877 Buy transaction came three months ago, while a C$33,449 Buy transaction occurred just five days ago. Charest’s average return per transaction is over 24%, meaning that he may be worth following.
Conclusion: National Bank’s Earnings Were Solid
National Bank had solid earnings results that narrowly beat expectations. Considering the economic circumstances and the tough year-over-year comparisons, NA did fairly well to only experience a 0.5% drop in EPS. Also, while its profitability has fallen, it’s still high, and the company is maintaining its strength better than Canada’s largest bank (Royal Bank of Canada). Also, both analysts and insiders are bullish on the stock, making it worth considering.
