Bank of Nova Scotia (TSX:BNS)(NYSE:BNS), Canada’s third-largest bank, announced its fourth-quarter earnings results this morning, and its stock has responded by falling 2% in early trading. Let’s break down the quarterly results and the fundamentals of its stock to determine if now is the time to buy.
The fourth-quarter results
Here’s a quick breakdown of 10 of the most notable financial statistics from Bank of Nova Scotia’s three-month period ended October 31, 2017, compared with the same period in 2016:
| Metric | Q4 2017 | Q4 2016 | Change |
| Net interest income | $3,831 million | $3,653 million | 4.9% |
| Non-interest income | $2,981 million | $3,098 million | (3.8%) |
| Total revenue | $6,812 million | $6,751 million | 0.9% |
| Adjusted net income attributable to common shareholders | $2,008 million | $1,943 million | 3.3% |
| Adjusted diluted earnings per share (EPS) | $1.65 | $1.58 | 4.4% |
| Total assets | $915,273 million | $896,266 million | 2.1% |
| Deposits | $625,367 million | $611,877 million | 2.2% |
| Loans | $504,369 million | $480,164 million | 5.0% |
| Common equity | $55,454 million | $52,657 million | 5.3% |
| Book value per common share | $46.24 | $43.59 | 6.1% |
What should you do now?
It was a solid quarter overall for Bank of Nova Scotia, and it capped off a very strong fiscal year for the company, in which its revenue increased 3.1% to $27.16 billion and its adjusted EPS increased 8.1% to $6.54 compared with fiscal 2016, so I do not think the drop in its stock is warranted. Furthermore, I think the decline represents a very attractive entry point for long-term investors for two fundamental reasons.
First, it’s undervalued. Bank of Nova Scotia’s stock now trades at just 12.5 times fiscal 2017’s adjusted EPS of $6.54 and only 11.7 times fiscal 2018’s estimated EPS of $6.98, both of which are inexpensive given its current earnings-growth rate and its estimated 8.7% long-term earnings-growth rate; these multiples are also inexpensive given the strength and stability of its business model, and the limited competition it faces.
Second, it’s a dividend-growth star. Bank of Nova Scotia currently pays a quarterly dividend of $0.79 per share, representing $3.16 per share annually, which gives it a 3.9% yield. It’s also important to note that fiscal 2017 marked the seventh consecutive year in which it has raised its annual dividend payment, and that its 3.9% hike in August has it on pace for fiscal 2018 to mark the eighth consecutive year with an increase.
Bank of Nova Scotia’s stock is up about 6% since it reported its third-quarter earnings results on August 29, and I think it still represents a great long-term investment opportunity today, so take a closer look and consider adding it to your portfolio.
