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.
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