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Bank of Queensland Ltd (ASX: BOQ) shares have gone unnoticed over the past twelve months, overshadowed by the share prices of other major banks.
But after rising nearly 4% over the past month and trading at $6.36 at the time of writing, the stock is now approaching its 52-week high again, as shown in the chart below.
With the stock returning to its previous highs, many investors may be wondering if now is the right time to buy this ASX bank – and if the price is right.
Let’s see what the experts think about Bank of Queensland shares.
Initial valuations for Bank of Queensland shares
At the time of publication, Bank of Queensland is trading at a price-earnings ratio (P/E) of around 16, just behind the S&P/ASX 200 Index (ASX: XJO) 18 times.
Compared to the big four only ANZ Group Holdings Ltd (ASX: ANZ) is cheaper at 13x P/E.
According to CommSec, analysts’ consensus estimate is that the bank will generate earnings per share (EPS) of 48.2 cents this year.
If this value is reached and investors continue to pay the current P/E ratio of around 16, the stock would be worth $7.70 under these assumptions (15.96 x 0.482 = $7.70).
This represents an additional upside potential of 21% compared to the current share price.
However, if the contract multiplies, say 15 times, that would result in a market value of $7.32 per unit – still an upside potential of 12%.
In my opinion, this is a good sign for the Bank of Queensland share price. Now it’s just up to the bank to meet consensus estimates.
What about dividends?
Valuing ASX bank shares is not just about profits. Dividends also play a role in the calculation.
Bank of Queensland may not have the weight of the big four, but it makes up for this with a high dividend yield.
At its current share price, BOQ offers a 6% dividend yield, rising to 8.5% with all tax credits, which I believe is a talking point for those looking to generate passive income from ASX shares.
Looking ahead, consensus forecasts predict that the bank will pay an annual dividend of 33 cents per share in fiscal 2024, which equates to a yield of around 5.1% based on today’s share price.
In the 2025 fiscal year, the dividend is expected to rise to 34 cents per share, with the return remaining the same.
Not only rosy for Bank of Queensland shares
Despite the attractive dividend, UBS recommends “Sell” on Bank of Queensland shares and has a price target of $5.50.
This represents a potential downside of over 13% from current levels. UBS’s concerns focus on pressure on BOQ’s net interest margin (NIM) and the potential for unexpected cost increases.
In the first half of fiscal 2024, BOQ saw its NIM decline 3 basis points to 1.55%, while cash income fell 33% to $172 million.
Nevertheless, UBS expects BOQ’s net profit to recover, with the company forecasting growth of 8.8% for FY25 and a further increase of 14.4% for FY26.
The broker also points out that capital gains in the form of dividends could provide some upside potential.
Stupid realization
Bank of Queensland shares offer an attractive dividend yield, but the question is whether we can get them cheaply.
When you combine the discounted P/E ratio and the current dividend yield, the stock seems relatively cheap in my opinion.
