Equitable Group’s Growth Prospects and Credit Resiliency Challenges Justify Hold Rating

BMO Capital analyst Etienne Ricard downgraded the rating on Equitable Group to a Hold today, setting a price target of C$111.00.

Etienne Ricard has given his Hold rating due to a combination of factors impacting Equitable Group’s growth prospects. The company faces potential challenges in maintaining its historical loan growth, which has been a key factor in its past outperformance compared to larger banks. Concerns arise from a potential decrease in immigration, a challenging market for self-employed individuals, reduced real estate transactions, and increased competition in the mortgage broker channel. These factors contribute to a cautious outlook on the company’s ability to sustain its growth trajectory.
Additionally, Ricard highlights issues related to credit resiliency, noting that Equitable Group’s credit metrics have underperformed compared to its banking peers. This underperformance is evident in the higher proportion of impaired retail loans and the company’s significant exposure to the Ontario market, where property values have been weaker. Furthermore, EQ Bank’s stagnation in deposit growth limits its potential as a lever for margin expansion. Given these challenges, the current stock valuation appears to reflect a balanced risk-reward scenario, justifying the Hold rating.