Canadian banks are set to report their first quarter earnings with investors and analysts alike looking out for insights into the impact of ongoing tariff concerns on growth and credit outlooks.
Canadian bank stocks have declined 2.1% since US President Donald Trump first threatened tariffs against the country but the broader investment case remains intact, analysts at Bank of America (BofA) believe.
“The tariff threat alone does not derail our constructive thesis on the group which is underpinned by BofA Economics team's forecast for a cyclical rebound in the Canadian economy on the back of Bank of Canada rate-cuts and market expectations for a shift to a pro-business federal government,” they wrote.
“However, prolonged overhang due to trade tensions with the US could negatively hurt growth/credit outlook.”
They believe messaging from management teams during upcoming earnings on the impact of tariffs could inform if investors are willing to look past the headline risk.
“US banks downplayed tariffs concern during our conversations at BofA's annual financial services conference last week, owing to a pro-business Trump agenda,” they wrote.
The analysts see Canadian banks’ valuations as attractive due to limited investor appetite to add exposure, with a clear reference for European and American peers.
“That said, an improving EPS growth trajectory, potential for easing banking regulations and move to a pro-business policy backdrop, all (rightly) seen as reasons to own bank stocks among domestic investors,” they wrote.
Fiscal 2025 EPS is expected to rise 7.2% year-over-year, compared to 3.5% in fiscal 2024, they noted.
Among their top picks are Toronto-Dominion Bank (TSX:TD) and Canadian Imperial Bank of Commerce (CIBC) (TSX:CM).
They also initiated coverage on National Bank of Canada (TSX:NA) with a ‘Buy’ rating citing next week’s update from Canadian Western Bank as a potential catalyst.