National Australia Bank Ltd (ASX: NAB) shares are in focus this week with the S&P/ASX 200 Index (ASX: XJO) bank share scheduled to release its full-year result for FY22. With the report being so close, would it be worthwhile to buy NAB shares?
NAB is expected to release its result on 9 November 2022.
It will tell investors about various financial measures including the (cash) net profit after tax (NPAT), its lending profitability margins, its costs, the arrears of its loan book, its bad debt provisioning, the dividend, the outlook and even more areas.
Is the NAB share price a buy?
According to reporting by The Australian, the broker Morgan Stanley thinks that NAB will report "another clean result" and generate cash profit of $7.2 billion.
The broker expects the FY22 second-half profit, before provisions, to be $5.5 billion, while the cash profit (excluding notable items) could be $3.7 billion. This compares to consensus estimates of $5.3 billion and $3.6 billion respectively.
Morgan Stanley analyst Richard Wiles said:
We expect quite a clean result, but we think investors will be disappointed if earnings don't come in above consensus.
The outlook for the first half of FY23 should be positive, but we'll be watching for differences versus peers in the size of mortgage headwinds, deposit tailwinds and mix impacts.
The broker rating on NAB is equal-weight, which is like a hold. Morgan Stanley's price target on NAB, which is where it thinks the NAB share price will be in 12 months, is $29.60. That implies a possible 8% fall over the next year.
Based on Morgan Stanley estimates, NAB is valued at 15 times FY22's estimated earnings with a FY22 grossed-up dividend yield of 6.7%.
What do other brokers think?
Morgans currently has a hold rating on the business, with a price target of $30.30. That implies a possible fall of approximately 5%. This broker thinks that the NAB share price is valued at 14 times FY23's estimated earnings, with a possible grossed-up dividend yield of 6.9%.
Citi rates NAB shares as a buy, with a price target of $32.75. This implies a slight rise for the ASX bank share. It's expecting an attractive increase in the lending profit margin (the net interest margin (NIM)).
On Citi's numbers, the NAB share price is valued at 15 times FY22's estimated earnings with a potential grossed-up dividend yield of 6.7%.
My view on whether to buy at this NAB share price
NAB shares have risen 6.5% over the past month and are up close to 12% since 3 October 2022.
I do think that NAB is now one of the best banks to own on the ASX. Short-term profitability is headed up thanks to rising interest rates. But, I'm keeping in mind that loan arrears could worsen if some households are unable to absorb the cost of the higher interest rates. Investing is a long-term activity, so I think we can't ignore what could be happening by the start of FY24.
I'd be happy to wait to see the result before buying NAB shares.
