BofA Says Scotiabank CEO Offered 'Clarity;' Analyst Turns Bullish

Bank of America analysts turned bullish on Canadian-based Bank of Nova Scotia BNS after investor meetings with CEO Brian Porter and SVP Investor Relations Phil Smith.

The Analyst

Bank of America analyst Ebrahim Poonawala upgraded Bank of Nova Scotia's TSX-listed stock from Neutral to Buy with a price target lifted from CA$69 to CA$82.

The Thesis

Poonawala's chat with Scotiabank executives offered "clarity" on both near-term and long-term growth prospects which positions the stock to reverse recent underperformance, Poonawala wrote in the upgrade note. The three main takeaways from the meeting which support the bull case include:

Recent acquisitions "clouded" Scotiabank's earnings outlook which may have prevented some investors from buying the stock. But management expressed a "laser focus" plan to drive earnings growth from synergies in the "relatively stable" Canadian macro-environment. The analyst estimates EPS should grow 5% in 2020 (7% excluding the impact from divestitures) which marks an acceleration from 2.4% in 2019.

Scotiabank derives 24% of total exposure from Latin America and offers a "much needed" diversification against lower and even negative interest rates.

Accelerating earnings growth should prompt management to increase its dividend payout to a 5% yield in 2020.

The research firm's revised CA$82 price target is based on a 2020 P/E multiple of 11 times and a P/Book of 1.5 times. At current levels the stock offers investors "among the most attractive" risk to reward profiles in the group.

Benzinga's Take

Investors may want to wait until after the October elections before investing in a Canadian bank as the voting outcome can create some near-term political instability.

Do you agree with this take? Email feedback@benzinga.com with your thoughts.