National Australia Bank Ltd (ASX: NAB) shares are rising again on Monday.
In morning trade, the banking giant's shares have hit a new 52-week high of $36.86.
This latest gain means that they are now up almost 34% since this time last year.
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Why are NAB shares rising?
Investors have been buying the big four bank's shares again on Monday after Westpac Banking Corp (ASX: WBC) followed NAB's lead by releasing a strong quarterly update.
Westpac reported a 1% increase in net operating income thanks to an improved net interest margin (NIM) and a 6% lift in net profit after tax to $1.8 billion.
Combined with NAB's own quarterly update on Friday and the prospect of interest rates falling soon, sentiment in the banking sector is at a high right now.
Should you invest?
Analysts at Goldman Sachs have been running the rule over the NAB update. They were reasonably pleased with what they saw, commenting:
NAB has released its 3Q24 trading update, with cash earnings from continuing operations of A$1.75 bn, down -0.2% on the 1H24 quarterly average, and run-rating in-line with what was implied by our prior 2H24E forecasts. PPOP was -3% below what was implied by our prior 2H24E forecasts, driven by weaker revenues and higher expenses. BDDs were better, but non-performing loans continued to rise. NAB's CET1 ratio of 12.6% was running +26bp higher than what was implied by our prior forecasts
However, this update was not enough for Goldman to recommend NAB's shares as a buy. It continues to believe the banking giant is fully valued at current levels.
As a result, it has reiterated its neutral rating with an improved price target of $34.24. This implies potential downside of 7% for investors from current levels.
Goldman highlights that the bank's shares are trading at a premium to historical averages. It concludes:
We are Neutral-rated on NAB given i) while we are attracted to NAB's SME exposures (which is driven more by service proposition as opposed pricing which allows for better NIM management than housing lending), the stock's valuation is difficult to justify. NAB is trading on a 12-mo forward PER of 15.9x, at the 98th percentile versus a 15-year history, and the 15-year average of 12.3x, and ii) although NAB is further through its productivity program than peers, we believe it may become increasingly difficult to sustain its current pipeline of productivity benefits into outer years.
