National Bank of Canada 2

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I do not own this stock of National Bank of Canada (TSX-NA, OTC-NTIOF). I have never covered this bank before, but I have heard good things about it. Some analysts are referring to Canada's big 6 banks and include this bank.

When I look at insider trading I find $23M in insider selling and a minimal amount of insider buying with net insider selling at $22.5M. Bank insiders tend to get a lot in options and sell them off when they can because it is part of their salary. Some 20M of this was selling by officers and some $2.8M by the CEO.

Under this bank there are not only options but Restricted Stock Units, Stock units subject to Criterion and Deferred Share units (UAD) / (DSU). (I am translating stock unit language from French.)

The CEO has $5M in shares and $103M in options. The CFO has $0.4M in shares and $5M in options. An officer has $0.04M in shares and $0.9M in options. A director has $0.6M in shares and $0.7M in options. This is just to give you an idea of what the options and insider ownership is like. In this bank an awful lot of people have stock options; the list goes on for about 15 pages.

It would seem 186 institutions own some 25% of the outstanding shares and have increased their shares by almost 2% over the past 3 months.

The 5 year low, median and high median Price/Earnings Ratios for this bank are 9.05, 10.28 and 11.57. The current P/E Ratio is 9.75 based on a stock price of $79.38 and 2013 earnings of $8.14. (Analysts expect the earnings in 2013 to be less than in 2012.) This low P/E ratio suggests a reasonable price.

I get a Graham Price of $76.59. The 10 year low, median and high median Price/Graham Price Ratios are 0.83, 0.93 and 1.07. The current ratio is 1.04. This ratios suggests that the price is a bit high, but still reasonable.

The 10 year median Price/Book Value per Share Ratio is 1.92 and the current P/B Ratio is 1.98, a ratio some 3% above the 10 year median ratio. This suggests that the stock price is reasonable.

The dividend yield is 4.18% and the 5 year median dividend yield is 4.27% a value some 2% higher than the current dividend yield. The close proximately of the dividend yield suggests a reasonable stock price.

My stock testing produced results that say the stock price is reasonable.

When I look at the analysts' recommendations, I find Buy, Hold and Underperform. The vast majority of the recommendations are a Hold and the consensus recommendation is a Hold. The 12 month consensus stock price is $82.50. This implies an 8.11% total return with 4.18% from dividends and 3.93% from capital gains.

Analysts seem to have low expectations from this bank. They do not expect with revenue nor earnings growth for 2013. That is probably why there are so many Hold recommendations for this stock. One analyst liked this bank because of high ROEs (25.3 for 2012) and low P/E (9.75 currently). Another analyst liked the stock because it was dominate in Quebec where it has a protected market and it is the least international of all Canadian banks.

Another analyst said that the bank will give you a good dividend going forward but not much capital gain. (Note that total return consensus for 2013 was just 3.9% capital gain.) There is a write up on Seeking Alpha about this bank. He likes the high yield and low payout ratios, but would wait for a minor pull-back before buying.

I expressed some concerns yesterday about the high EPS/CF Ratio, the difference in ROE between net income and comprehensive income and the high Leverage and Debt/Equity Ratios. I will continue to follow this stock for now, but I would not buy it.

Also, this bank as a lot of cash on hand and it has had lots of cash on hand for more than 5 years. If you reduce the stock price by the $20.14 cash per share the P/E is reduced to a quite low level of 6.85.

National Bank of Canada provides financial services to consumers, small and medium-sized enterprises, and large corporations & has branches in every province in Canada. It is also represented in the U.S. and Europe through its subsidiaries and alliances. It is also represented in the U.S. and Europe through its subsidiaries and alliances. Its web site is here National Bank. See my spreadsheet at na.htm.

This blog is meant for educational purposes only, and is not to provide investment advice. Before making any investment decision, you should always do your own research or consult an investment professional. See my website for stocks followed and investment notes. Follow me on Twitter or StockTwits.