May is set to be a big month for Canadian stocks. The big banks are reporting earnings, inflation data is coming out on May 16, and GDP data will be revealed at the end of the month. Taken together, these data releases will tell us a lot about the state of Canada’s economy, and its business community. For investors, the earnings releases and economic data about to be revealed could have material impacts on their portfolios. In this article, I will explore three Canadian stocks that will be worth watching in May’s eventful second half.
Constellation Software
Constellation Software Inc (TSX:CSU) is a Canadian tech company that reports earnings today, May 15. The company’s earnings release date is interesting in that it isn’t even three full months from the prior earnings release, likely because the previous release was delayed.
CSU is a very popular stock among Canadian investors. Much like Shopify, it has delivered “multi-bagger” returns for investors who got in early, but unlike Shopify, it does not trade at an absurdly steep valuation. At today’s prices, CSU trades at:
- 81 times earnings.
- 6.3 times sales.
- 32 times operating cash flow.
This is certainly an above-average valuation, but CSU is not at a double-digit sales multiple like SHOP is. In its upcoming earnings release, investors will get the opportunity to see whether CSU grew, not only because of acquisitions, but from its prior operations as well – something that was a sticking point for the company in the past.
TD Bank
The Toronto-Dominion Bank (TSX:TD) is a Canadian bank that reports earnings on May 25. Earlier, I mentioned that several economic data releases would be coming out this month, and TD’s earnings could be counted among those, even though it’s not a government agency. Canada’s big banks are true economic institutions, and the tightness or looseness of their lending standards influence economic growth as much as Bank of Canada policy does. So, TD’s earnings release will contain economically meaningful information.
As for the company itself: the most interesting thing to be revealed in its second quarter release will be the impact of the Cowen deal on earnings. TD bought the U.S. investment bank last quarter, and the upcoming release will be the first one to show the deal’s earnings impact. So, it will be one to watch closely.
Royal Bank
The Royal Bank of Canada (TSX:RY) is another Canadian bank that will be reporting earnings this month. Like TD, its release will be close to the end of the month and will contain a lot of information (e.g. loan growth) relevant to the entire economy, not just RY itself.
One thing to keep an eye on in RY’s upcoming release is the company’s HSBC Canada deal. Royal Bank will be buying HSBC Canada, and the deal could add over a billion dollars per year to Royal Bank’s net income. Like most bank deals, this will require multiple regulatory approvals, so investors will want to see that the deal is proceeding smoothly. As we saw with TD Bank’s cancelled First Horizon deal, such deals do not always proceed so smoothly.
