NAB (ASX:NAB) share price jumps after scintillating quarter

NAB shares are jumping on Thursday…

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Key points
  • NAB's shares are on fire on Thursday following its first quarter update
  • The banking giant outperformed expectations materially with its cash earnings
  • Is it too late to invest?

The National Australia Bank Ltd (ASX: NAB) share price is having an excellent day on Thursday.

The banking giant's shares are among the best performers on the ASX 200 with a gain of over 3% to $29.30.

This leaves the NAB share price trading within sight of its 52-week high of $30.30.

jump in asx share price represented by man jumping in the air in celebration

Image source: Getty Images

Why are investors bidding the NAB share price higher today?

The catalyst for the rise in the NAB share price on Thursday has been the release of the bank's first quarter update.

And much like the update from rival Commonwealth Bank of Australia (ASX: CBA) yesterday, NAB's update smashed the market's expectations.

For the three months ended 31 December, NAB delivered an 8% increase in revenue over FY 2021's second half quarterly average and a 12% increase in cash earnings to $1.8 billion.

It is the latter figure that has got investors and analysts most excited. Particularly given the margin pressures that NAB and the rest of the banks have been facing due to aggressive home loan competition. These pressures led to NAB's net interest margin (NIM) declining by 5 basis points to 1.64% during the quarter.

But that couldn't stop its earnings from smashing the market's expectations.

NAB's earnings smash expectations

For example, Bell Potter, which has been very bullish on the NAB share price, was only expecting cash earnings of ~$1.59 billion for the quarter. This means that NAB outperformed its estimates by over 13%.

It was a similar story over at Goldman Sachs. Its analysts have also been very positive on the bank, naming NAB as their top pick among the majors. But even they didn't foresee such a strong quarter.

Goldman commented: "NAB has released its 1Q22 trading update, with unaudited cash earnings from continuing operations of A$1.80 bn, up 12% on the previous period average, run-rating 6% ahead of what is implied by our current 1H22E forecasts."

The broker also highlights that management has reaffirmed its guidance for broadly flat expenses in FY 2022 despite reporting a 2% increase during the first quarter. Goldman feels this is still achievable given the bank's habit of front-end loading its expenses.

Its analysts explained: "While cost growth of 2% came in above our expectations, and ahead of management's "broadly flat in FY22" guidance, we note two things that leave us comfortable with our current expense forecasts: i) NAB has historically seen its cost growth front-end loaded into 1Q, and ii) management has explicitly reiterated its target."

Can its shares keep rising?

Goldman Sachs currently has a conviction buy rating and $31.15 price target on the bank's shares.

Based on the current NAB share price, this suggests potential upside of 6%. However, once the broker has adjusted its financial model, there's every chance that it could bump up its valuation to reflect this better than expected performance. Stay tuned for that.

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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