Equitable Group (TSE: EQB) (EQGPF) is a Canadian company that operates through Equitable Bank, the company’s subsidiary.
It owns several business lines, including single-family lending services, commercial lending services, securitization financing, and deposit services, including guaranteed investment certificates, high-interest savings accounts, and deposit notes.
EQB recently announced that starting today, it raised its prime lending rate by 50 basis points from 3.2% to 3.7%. It joins the other Canadian banks that have done the same in response to the central bank’s policy. The Bank of Canada recently raised its interest rate from 1% to 1.5% as it attempts to cool off the economy’s hot inflation.
This will raise the cost of borrowing for both banks and consumers. However, the banks will be able to generate more revenue from higher rates, which could translate to higher profits. That is, unless new loan originations decline enough to offset the gains from higher interest income.
Indeed, higher interest rates tend to slow down the economy and frequently lead to recessions as central banks often raise rates higher than what the economy can handle. Nevertheless, more interest rate hikes are expected going forward, which will translate to higher prime lending rates for EQB.
Insider Transactions
Insiders have been fairly active lately, as they have been adding shares of EQB to their holdings. Most notably, 10%+ shareholder Stephen Smith increased his position by over C$3 million less than two weeks ago.
A quick look at the Insider Confidence Signal in the picture below indicates that insiders are generally positive about the stock. In fact, the confidence score is higher than the sector average:
Analyst Recommendations
Equitable Group has a Strong Buy consensus rating based on seven Buys assigned in the past three months. The average Equitable Group price target of C$84.50 implies 32.9% upside potential.
Final Thoughts
EQB will likely benefit from higher interest rates going forward as long as the economy can handle it. In addition, both insiders and analysts seem to believe that the company is well-positioned to deliver solid returns to investors.
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