Oil plunge keeps Canadian Western behind the big five bank stocks

Bank StocksCanadian Western Bank (symbol CWB on Toronto; www.cwbank.com) offers business and personal banking services across the four western provinces. It’s the biggest Canadian bank headquartered in Western Canada and the country’s eighth-largest.

The bank’s wholly owned subsidiaries include National Leasing Group, Canadian Western Trust Company, Valiant Trust Company, Canadian Direct Insurance and Canadian Western Financial.

In the three months ended January 31, 2015, Canadian Western Bank’s earnings rose 6.8%, to $52.4 million, or $0.65 a share. A year earlier, it earned $49.1 million, or $0.61. Revenue improved 6.1%, to $150.9 million from $142.2 million.

Low interest rates continue to spur loan demand. As well, the bank set aside $7.0 million to cover future bad loans, down 8.5% from $7.6 million a year earlier.

Bank stocks: Dividend yield is significantly lower than that of Canada’s big five banks

In February 2015, Canadian Western announced a new plan to focus on its main banking businesses. As a result, it agreed to sell Canadian Direct Insurance to Intact Financial, symbol IFC on Toronto and a recommendation of Stock Pickers Digest. The sale price is $197 million.

The bank is also selling its Valiant Trust subsidiary’s stock-transfer and corporate-trust businesses to Australia’s Computershare Ltd. for $33 million. It expects to complete these deals in mid-2015.

The stock now trades at 10.9 times the $2.68 a share Canadian Western Bank will likely earn in 2015. However, its regional concentration adds risk, particularly as low oil and gas prices have prompted many producers to hold off on new projects and lay off workers. That could hurt loan demand and increase losses on the bank’s current loans.

As well, Canadian Western Bank’s 2.9% dividend yield is significantly lower than the yields of Canada’s five big banks, which average around 4.0%.

We think the big five banks offer better value and growth prospects for investors—and less risk.

TSI Network recommendation: SELL.

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