Getting into Laurentian Bank

ImageLaurentian Bank (LB.TO) meets my screening criteria.

Laurentian is a Canadian bank that provides retail and business banking services to individuals and small business across Canada.  It is headquartered in Montreal, QC.

Unlike the “big five” banks – CIBC, TD, Royal, Scotia and TD – Laurentian does not have overseas operations, which gives it a different risk profile: less risk caused by the Eurozone debt crisis and  US economic health, but less diversification in the event of economic trouble here in Canada.

ImageI analyzed the stock using my usual procedures. The results are as follows.

  • The P/E Ratio is 8.70, which is much lower than the average historical P/E of 10.43, and the Graham Number is a whopping $79.23
  • The Dividend Yield is 4.42%, and the coverage is 260%
  • Forecast Growth Rate is marginal at 3.50%, compared with 5.71% historically, which is likely why the P/E Ratio is lower than its historical average
  • The Gordon Return (Dividend + Growth) is 7.93%, which is low
  • The Margin of Safety at current prices is 15%. This is quite high, and this gives me confidence to take the risk of buying the stock with a return below 10%.

I believe that the stock is fairly priced here.

  • Buy LB.TO @ $44.30

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