Wednesday, January 03, 2007

Desjardins Downgrades CIBC & RBC

Financial Post, Jonathan Ratner, 3 January 2007

Sprott Securities expects another good year for the financial- services sector in 2007, thanks to the fact that most of these companies have significant amounts of excess cash, as well as reasonable valuations for their stocks.

Sprott estimates that approximately half of the financial services stocks it covers are overcapitalized, with the excess cash starting to become a drag on return on average equity for some.

"While it's difficult to generalize, most of these companies are earning very little with their cash at present, and thus virtually any action in the short-term will be viewed as positive," Sprott analysts wrote in a research note.

They argue that the best option for most of these companies is a share buy-back.

The financial-services industry has outperformed the market in nine of the last 11 years, delivering returns that more than doubled those of the composite index, according to Sprott. In 2006, the financials outperformed the broader index by only 1%, but Sprott expects the sector will perform well in 2007 regardless of the economic outlook.

Meanwhile, Desjardins Securities analyst Michael Goldberg has moved its ratings on both Canadian Imperial Bank of Commerce and Royal Bank of Canada to "hold" from "buy," due to their expected upside of 5% or less. However, he has hiked his target price for CIBC to $102 from $99, while RBC's is unchanged at $56.50.

National Bank, with a target price of $68 and Laurentian Bank at $32 are also rated "hold." Toronto-Dominion Bank remains a "top pick" for Mr. Goldberg, although he is reducing his target to $75 from $76.50. Meanwhile, Bank of Montreal (target: $77), Canadian Western Bank ($55) and Bank of Nova Scotia ($57) are also rated "buys."

"We believe that the market will continue to reward the banks that have the best capacity and visibility to grow their business platforms, their earnings and ultimately cash distributions to their stockholders via dividends or stock buybacks," Mr. Goldberg wrote.

Bloomberg, Sondra Kennedy, 2 January 2007

Canadian Imperial Bank of Commerce was downgraded to "hold" from "buy" by analyst Michael Goldberg at Desjardins Securities. The price target is C$102.00 per share.

Royal Bank of Canada was downgraded to "hold" from "buy" by analyst Michael Goldberg at Desjardins Securities. The price target is C$56.50 per share.