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Canaccord Genuity Tops Earnings Estimates; Shares Up 2.5%

Story Highlights

Canaccord Genuity’s decline in revenue and earnings on a year-over-year basis has to do with economic cyclicality as opposed to a fundamental problem with the company. Buybacks and insider buying signal that management believes the stock is undervalued.

Canaccord Genuity Group (TSE: CF) (CCORF) provides investment banking and brokerage services. It operates through the following segments: Canaccord Genuity Capital Markets, Canaccord Genuity Wealth Management, and Corporate and Other.

The company recently reported earnings for its second quarter, which came in better than expected. Investors seemed to like the news, as the stock is currently up 2.5%. Earnings per share were C$0.52 compared to the C$0.45 estimate. In addition, the company posted revenue of $490.8 million.

Both of these figures were lower year-over-year. Revenue declined 29.1%, whereas earnings per share fell by 56.7%. The main driver of this decline was reduced activity in investment banking.

In the comparable quarter of 2021, there was a lot of capital floating around, looking to make deals. However, market conditions have changed drastically since then due to quantitative tightening. Investors have become more cautious, which has led to a reduction in deals.

Nonetheless, the company repurchased 6,451,612 common shares in its Fiscal 2022, signaling confidence from management. More confidence is shown through insider transactions as well.

Insider Transactions

In the past three months, most insider transactions have been fairly small Buys in the C$2,000 to C$30,000 range. However, three transactions really stood out. Company President and Chief Executive Officer Daniel Joseph Daviau made three purchases that were each over C$1 million.

This demonstrates that the company’s CEO is very confident about the direction the business is heading in and has decided to substantially increase his ownership. Indeed, Daniel Joseph Daviau owns about C$27.5 million worth of Canaccord Genuity stock.

Analyst Recommendations

Canaccord Genuity has a Moderate Buy consensus rating based on two Buys assigned in the past three months. The average Canaccord Genuity price target of $16.15 implies 51.8% upside potential.

Final Thoughts

The decline in revenue and earnings on a year-over-year basis has to do with economic cyclicality as opposed to a fundamental problem with the company. Indeed, the CEO substantially increasing his stake and the company buying back shares both signal strong faith in the business. As a result, the stock may be worth keeping an eye on.

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