Bank Nova Scotia Halifax (BNS) Seems Undervalued - Why Isn't It Rated as Buy?

Bank Nova Scotia Halifax may be undervalued with poor growth indicators, but the 5 analysts following the company give it an rating of hold. Their target prices range from $51.97 to $65.36 per share, for an average of $56.58. At today's price of $48.86, Bank Nova Scotia Halifax is trading -13.64% away from its average target price, suggesting there is an analyst consensus of some upside potential for the stock.

The Bank of Nova Scotia provides various banking products and services in Canada, the United States, Mexico, Peru, Chile, Colombia, the Caribbean and Central America, and internationally. Based in Toronto, Canada, the large-cap Finance company has 91,264 full time employees. Bank Nova Scotia Halifax has offered a 8.1% dividend yield over the last 12 months.

Bank Nova Scotia Halifax has a trailing twelve month P/E ratio of 9.2, compared to an average of 14.34 for the Finance sector. Based on its EPS guidance of 6.01, the company has a forward P/E ratio of 8.1.

The average compound growth rate of the company's historical and projected earnings per share is -2.1%. On this basis, the company's PEG ratio is -4.47, which indicates that its shares are overpriced.

On the other hand, the market is potentially undervaluing Bank Nova Scotia Halifax in terms of its book value because its P/B ratio is 0.79. In comparison, the sector average P/B ratio is 1.57. The company's shares are currently -47.7% below their Graham number, indicating that its shares have a margin of safety.

Why would analysts be giving such an undervalued stock a bad rating? It's possible that analysts are looking beyond common valuation metrics and taking into account the company's potentially irresponsible use of debt to operate its business. Bank Nova Scotia Halifax Pfd 3's negative EPS growth rate of -5.6% is another drawback.

2019-10-31 2020-10-31 2021-10-31 2022-10-31
Revenue (MM) $30,236 $31,292 $30,913 $31,148
Interest Income $17,177,000 $17,320,000 $16,961,000 $18,115,000
Net Margins 27.75% 21.66% 31.13% 31.84%
Net Income (MM) $8,390 $6,778 $9,624 $9,916
Depreciation & Amort. -$1,053,000 -$1,546,000 -$1,511,000 -$1,531,000
Earnings Per Share $6.68 $5.3 $7.7 $5.31
EPS Growth n/a -20.66% 45.28% -31.04%
Diluted Shares (MM) 1,251 1,243 1,225 1,192
Free Cash Flow (MM) -$12,211 $55,893 -$13,269 $16,372
Capital Expenditures (MM) -$186 -$771 -$462 -$571
Long Term Debt $19,487,000 $7,405,000 $158,269,000 $177,426,000
Net Debt / EBITDA 2.97 -0.43 5.04 7.48
The above analysis is intended for educational purposes only and was performed on the basis of publicly available data. It is not to be construed as a recommendation to buy or sell any security. Any buy, sell, or other recommendations mentioned in the article are direct quotations of consensus recommendations from the analysts covering the stock, and do not represent the opinions of Market Inference or its writers. Past performance, accounting data, and inferences about market position and corporate valuation are not reliable indicators of future price movements. Market Inference does not provide financial advice. Investors should conduct their own review and analysis of any company of interest before making an investment decision.