On Thursday, BofA Securities revised its rating on Credit Agricole SA (ACA:FP) (OTC: OTC:CRARY), changing it from "Buy" to "Neutral" and adjusting the price target to €16.50 from the former €17.00.
The bank is anticipated to maintain a solid revenue compound annual growth rate (CAGR) of 4% from 2023 to 2026, benefitting primarily from non-interest income growth. Additionally, Credit Agricole is expected to exhibit effective cost control and maintain benign asset quality.
Despite these positive forecasts, the analyst at BofA Securities expressed concern that Credit Agricole's shares currently lack clear catalysts for growth. Over the past six months, consensus estimates have significantly increased, exceeding management's targets by more than 10% in earnings per share (EPS).
However, it is unlikely that these estimates will rise further until the bank's management revises its own goals, which may not occur until after the summer of 2025.
The analyst also pointed out that Credit Agricole's capital return is lower than the European Union peers' average, with a dividend yield standing at 8% and no share buyback program in place.
Additionally, the potential for further significant mergers and acquisitions (M&A) activity in Italy, similar to the April 2022 acquisition of a stake in Banco BPM, could negatively impact investor sentiment. This is particularly relevant as the bank does not have excess capital to fund such deals.
In conclusion, while Credit Agricole's valuation is not considered high at 7 times price-to-earnings (P/E) and 0.9 times price-to-tangible book value (P/TBV) for an expected return on tangible equity (ROTE) of 13.5% in 2025, BofA Securities sees more attractive investment opportunities elsewhere in the market.
InvestingPro Insights
Recent data from InvestingPro offers additional context to BofA Securities' analysis of Credit Agricole SA. The bank's market capitalization stands at $43.59 billion, reflecting its significant presence in the financial sector. Credit Agricole's P/E ratio of 6.51 aligns with BofA's assessment of a relatively low valuation, supporting the "InvestingPro Tip" that the bank is trading at a low earnings multiple.
Notably, Credit Agricole boasts a substantial dividend yield of 5.98%, which, while lower than the European peers' average mentioned in the article, still represents a significant return to shareholders. This is highlighted by an InvestingPro Tip indicating that the bank "pays a significant dividend to shareholders."
The bank's revenue growth of 9.58% over the last twelve months and a 3.37% quarterly growth rate demonstrate its ability to generate increasing income, supporting BofA's projection of a 4% CAGR from 2023 to 2026. However, an InvestingPro Tip cautions that 4 analysts have revised their earnings downwards for the upcoming period, which may explain BofA's concern about the lack of clear catalysts for share price growth.
For investors seeking a more comprehensive analysis, InvestingPro offers 7 additional tips for Credit Agricole, providing a deeper understanding of the bank's financial position and market performance.
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