Why Bank of Nova Scotia Is Down 2%
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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Fool contributor Joseph Solitro has no position in any stocks mentioned.