Highlighting the “prospect of outsized growth at a discounted valuation,” Jefferies Financial Group initiated coverage of Equitable Bank and EQ Bank parent EQB (EQB.TO) on Thursday, adding its “Buy” rating to a largely positive analyst outlook for the stock.

In a note to investors, Jefferies analyst John Aiken expresses confidence that EQB’s efforts to overcome recent credit weakness will succeed, and argues the current valuation underplays the bank’s growth and profitability.

“When compared to its peers, this track record has not been fully recognized by the market, as it trades at the lowest P/E [price-to-earnings] multiple of the group — providing significant upside for investors willing to look past the immediate credit concerns in its commercial lending portfolio.”

Jefferies is the second investment bank to begin covering EQB this month, following RBC Capital Markets, which initiated coverage on January 6 with an “Outperform” rating. Six of nine analysts currently rate the stock a “Buy” or “Outperform,” according to Bloomberg data.

Jefferies’ price target is $129, not far off the average among all analysts at $123.44, per Bloomberg data. At $153, RBC’s target is the highest.

Shares of EQB finished at $112.92 on the Toronto Stock Exchange on Friday, up just under one per cent from Thursday’s close.

In his note, Aiken singles out EQB’s “demonstrably higher” target for earnings per share (EPS) growth of 12 to 15 per cent, and identified “several avenues” to generate that growth:

Jefferies’ price target is based upon a 10.5x multiple of projected 2025 EPS, which Aiken notes is “well below” the average multiple of 13.0x for larger banks.

“However, we could easily see market sentiment improving on the name as credit improves and would not be surprised to see its valuation become more reflective of a market multiple,” Aiken said.

The main risks to Jefferies’ outlook relate to ongoing economic uncertainty.

“If the Canadian economy cannot resume even modest growth, our forecasts for loan growth and more normalized credit losses will be a challenge for EQB to meet.”