Canara Bank shares: Undervalued stock trading at 52-week high; can it offer more returns?

Shares of Canara Bank hit their 52-week high in early trade amid a stellar rally in the broader market today. The banking stock surged 3.70% to a 52 week high of Rs 520 in early trade. However, the Canara Bank stock is still undervalued at this level. Its PE stands at 6.39 compared to the sectoral PE of 14.36.

Despite the low PE, the stock has had healthy financials in the past. The lender has clocked a healthy profit growth at a compound annual growth rate (CAGR) of 37% in the past five years.

Canara Bank reported a 26.87% rise in Q3 net profit to Rs 3,656 crore against a profit of Rs 2,881.5 crore in the year ago period. Gross NPAs improved to 4.39 per cent while net NPAs stood at 1.32 per cent in the December quarter.

In the second quarter of this fiscal, the lender reported 43 per cent rise in net profit to Rs 3,606 crore, compared to Rs 2,525 crore in the corresponding period last year. Net-interest income (NII) – the difference between interest earned and interest expended- in the second quarter rose 19.8 per cent to Rs 8,903 crore, compared to Rs 7,433.8 crore in the year-ago period.

The stellar movement in the stock price reflects healthy financials of the lender.

Canara Bank shares have gained 17 per cent since the beginning of this year and risen 82 per cent in one year. It has zoomed 254% in three years. The banking stock hit a 52-week low of Rs 268.85 on February 24, 2023  and has surged 94% since then.

Canara Bank has a one-year beta of 0.5, indicating low volatility during the period.    

In the current session, market cap of Canara Bank stood at Rs 94,488 crore. Total 2.26 lakh shares changed hands amounting to a turnover of Rs 11.60 crore. 

Rekha Rakesh Jhunjhunwala, wife of late investor Rakesh Jhunjhunwala, held 37,597,600 shares or 2.07 per cent in the public sector lender as on December 31, 2023.

In terms of technicals, the relative strength index (RSI) of the Canara Bank stock stands at 71.7, signaling the stock is trading in the oversold zone.  

Brokerage Motilal Oswal is bullish on the lender with a target of Rs 570  

“Asset quality ratios improved significantly, with credit costs falling below 1%. Fresh slippages stood at Rs 26.97 billion vs. Rs 29.87 billion in 2QFY24. RoA/RoE stood at 1.01%/21.95%.  We broadly maintain our EPS estimates and expect Canara Bank to deliver FY25E RoA/RoE of 1.1%/19.5%. Reiterate BUY with a target price of Rs 570,” said the brokerage.

Antique Broking has a target of Rs 550 for the lender. “The bank has been delivering 1% plus RoA for the last four quarters now, but contribution from non-recurring streams continue to play a big role which can keep earnings volatile and for a stronger re-rating it would be important for the bank to show better core performance. We revise our FY24 earnings upwards by 5% and largely maintain FY25/ 26 estimates. Maintain BUY with an unchanged target of Rs 550 (1.0x FY26 BV),” it said.

 

Disclaimer: Business Today provides stock market news for informational purposes only and that should not be construed as an investment advice. Readers are encouraged to consult with a qualified financial advisor before making any investment decisions.     

 

 

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