Is Scotiabank Stock a Safe Buy After Earnings?

Bank stocks continue to come out with earnings, with Scotiabank stock falling short. So which ones should investors consider?

| More on:
think thought consider

Image source: Getty Images

The Bank of Nova Scotia (TSX:BNS) saw shares drop in May as Scotiabank stock came out with disappointing earnings for the quarter. In the face of a potential recession, inflation and higher interest rates, the company saw a hit to profits.

What happened?

Second-quarter earnings missed analyst estimates, as the company experienced more expenses but saw less loan growth. While Scotiabank has provisions for loan losses, these continue to be drained during this poor economic period.

Scotiabank net income fell 21% year over year to $2.2 billion, or $1.69 per share. Analysts expected $1.77 per share, providing a significant miss from estimates. Meanwhile, expenses rose 10% year over year. A major contributor? Hiring and larger salaries, as well as advertising costs. This was also felt around the world as Scotiabank stock continues to push its expansion in Chile, Colombia, Mexico, and Peru.

Is international a good idea?

Analysts are now wondering whether Scotiabank stock is a safe choice given its focus on South and Central American expansion. This is especially notable given that Chile and Colombia are in a recession as we speak.

A new study also found that those banks that stay focused on Canada tend to do better rather than those focused on international expansion. Economists have found that Canadian banks have not experienced a bank crisis since 1840. Meanwhile, there have been several in the United States, as well as in Latin American countries thanks to political, financial, and currency instability.

Analysts weigh in

Of course, analysts immediately weighed in on the results from Scotiabank stock, calling earnings “not great.” That being said, there were some signs of encouragement, especially in terms of outlook. Results were strong in Latin America and the Caribbean. Management also expects to expand from here as asset prices and costs continue their path of stabilization.

So for now, analysts retain a “hold” for Scotiabank stock. Its lower earnings show that right now is a struggle, but not one that it won’t be able to get out of. Don’t go thinking that the stock will suddenly go under in the near future. In fact, all Canadian banks remain a solid long-term hold.

However, if you’re hoping for a sudden comeback, you may want to hold off, as analysts continue to state. Especially as new management continues to increase expenses to pay for a “refresh.”

Bottom line

Scotiabank stock is certainly still a strong choice for Canadians wanting international exposure to emerging markets. It continues to see growth in numerous areas in this respect; however, expenses and interest rates continue to weigh on the company.

That being said, as inflation and interest rates stabilize, and this new “refresh” gets underway, costs will settle. The stock will certainly continue to see growth in earnings and revenue, and should certainly be back to pre-fall prices within a year’s time, likely less.

So long-term holders may view shares down 22% in the last year as a major deal – especially while trading at 9.2 times earnings and a 6.19% dividend yield to consider as well.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Amy Legate-Wolfe has no position in any of the stocks mentioned. The Motley Fool recommends Bank Of Nova Scotia. The Motley Fool has a disclosure policy.

More on Bank Stocks

Blocks conceptualizing Canada's Tax Free Savings Account
Bank Stocks

How to Use Your TFSA to Earn $4,750 in Annual Passive Income

Bank stocks like the Toronto-Dominion Bank (TSX:TD) can produce over $4,750 in a maxed out TFSA.

Read more »

Glass piggy bank
Dividend Stocks

Prediction: These 2 Canadian Bank Stocks Are Next in Line to Pop

These two Canadian banks are climbing, but still have so much more room to run. And with the highest dividend…

Read more »

Golden crown on a red velvet background
Dividend Stocks

Dividend Royalty: 2 Fabulous Stocks to Buy Now for Decades of Passive Income

Two blue-chip stocks from the banking and energy sectors are excellent sources of pension-like income.

Read more »

TFSA (Tax-Free Savings Account) on wooden blocks and Canadian one hundred dollar bills.
Bank Stocks

Want to Be a TFSA Millionaire? The CRA Says ‘Watch Out’

Holding blue chip stocks like Royal Bank of Canada (TSX:RY) is preferable to trying to get rich trading options.

Read more »

Red siren flashing
Bank Stocks

Bargain Alert: I’ve Been Buying Dips in These Canadian Bank Stocks

Canadian bank stocks are great long-term options that can provide growth and income for decades. Here are two that trade…

Read more »

Dice engraved with the words buy and sell
Bank Stocks

Canadian Western Bank Stock: Buy, Hold, or Sell After Buyout Offer?

Canadian Western Bank stock is, at best, a "hold" as both stocks of CWB and NA appear to be fairly…

Read more »

question marks written reminders tickets
Bank Stocks

Is TD Bank Stock a Good Buy Now?

TD Bank (TSX:TD) stock looks like a dirt-cheap buy if you like big dividends and can handle added risks.

Read more »

Man data analyze
Bank Stocks

Thinking of Loading Up on Cheap TD Stock? Read This First

TD looks cheap right now. Is it oversold, or is more downside on the way?

Read more »