BoFA Securities has chosen Canara Bank and Union Bank of India as its top PSU Bank stock picks as it believes state-run lenders are driving outperformance.
The brokerage has assigned a ‘buy’ rating on these two stocks and also upgraded their target prices reflecting a potential upside of up to 34%.
BoFA Securities raised the target price of Union Bank of India to ₹140 from ₹130 earlier, implying a potential gain of around 34%.
It also upgraded the target price of Canara Bank to ₹490 from ₹455 earlier, which suggests potential gains of 25%.
BoFA in a report explained that Union Bank of India and Canara Bank remain its top picks among state-run banks due to meaningful upside to earnings and valuation (0.7x FY25E P/B).
On public sector banks, the brokerage stated that the September quarter financial results of PSU banks have surprised positively and have been driving outperformance.
It mentioned that the NIFTY PSB index is up 11% against NIFTY Banks which is down 1% over the last three months.
The risk-reward is positive for PSBs on earning per share (EPS) upside, improvement in investor positioning and scope for decline in valuation discount, BoFA Securities said.
Canara Bank reported a 42.8% year-on-year growth in net profit to ₹3,606 crore for the September quarter of 2023-24, beating the CNBC-TV18 poll estimate of ₹3,476.9 crore.
Its net interest income (NII) rose by 19.76% year-on-year to ₹8,903 crore while the net interest margin increased to 3.02%, a growth of 19 basis points.
Canara Bank also reduced its cost to income ratio by 53 basis points to 43.68%.
Union Bank of India reported a 90% year-on-year growth in net profit to ₹3,511.4 crore for the September quarter against a net profit of ₹1,848 crore in the year ago period.
Net interest income (NII) grew by 10% to ₹9,126.1 crore in September quarter compared to ₹8,305 crore in the corresponding quarter of FY23.
Canara Bank shares were trading 0.45% higher at ₹394.85 apiece on BSE while Union Bank shares were up by 1.46% at ₹107.60 at 9.46 AM on Friday.
(Edited by : Shloka Badkar)
First Published: Nov 24, 2023 12:10 PM IST
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