Credit Suisse Upgrades Canadian Bank, Sees 'Perfect Storm' Buying Opportunity

• Credit Suisse believes that the market has been too harsh on Canadian bank stocks.
• Canada’s economy has much more to it that just oil.
• The firm has upgraded National Bank of Canada NTIOF to Outperform and remains bullish on other names as well.

In a new report, Credit Suisse analyst Kevin Choquette explains why he believes now is a perfect time to be buying Canadian bank stocks. Choquette feels that the current pricing of the banks reflects an overly negative market view.

Balanced economy
According to the report, Canada’s economy is not just about oil and is more balanced that many people realize. Choquette points out that 76 percent of Canada’s exports go to the U.S., which is experiencing a strong economic expansion relative to many other global economies. Credit Suisse believes that the market is discounting Canadian bank share prices due to weakness in crude oil, but it is ignoring structural improvements in revenue and loan mix, balance sheet strength and profitability.

Value
Candian bank share prices have fallen about 5.0 percent so far this year even though earnings have improved by 6.0 percent and dividends have climbed 8.0 percent. In addition, P/B ratios are the second lowest in 20 years. The only time they have been lower was during the Financial Crisis. Choquette adds that P/E ratios have still not recovered since the crisis, but Credit Suisse expects strong multiple expansion in coming years.

Upgrade
Credit Suisse believes that a confluence of factors has produced the perfect buying opportunity when it comes to Canadian Banks. The firm has reiterated its Outperform rating on Royal Bank of Canada RY and Bank of Montreal (USA) BMO and has upgraded National Bank of Canada to Outperform as well.

Disclosure: the author holds no position in the stocks mentioned.