Analyst downgrades Scotiabank on international risk, lack of takeover
BNN Bloomberg
TD Securities Analyst Mario Mendonca downgraded Bank of Nova Scotia to hold from buy on Thursday as he sized up the bank’s outlook against its peers.
TD Securities Analyst Mario Mendonca downgraded Bank of Nova Scotia to hold from buy on Thursday as he sized up the bank’s outlook against its peers.
Mendonca pointed to unique risks facing Scotia by virtue of its sprawling geographic footprint as well as the lack of a major growth driver like what some of its peers are looking forward to after making major acquisitions. While Mendonca didn’t identify specific takeovers, TD Bank Group announced last month that it’s buying Memphis, Tenn.-based First Horizon Corp. for US$13.4 billion; and BMO Financial Group announced in December it’s buying Bank of the West in a US$16.3-billion deal.
“The Latin American region continues to face political turmoil and [Scotia] is reinventing itself in the region,” he wrote in a note to clients, adding that he doubts the bank’s business in the region will outpace what its peers will enjoy from their international footprints.
“We believe that in a few years time, when the accretion from the large deals from the banks with significant excess capital are augmenting earnings growth, Scotia may not have a special growth engine to point to,” he wrote.
Mendonca maintained his 12-month price target of $100.00 per share on Scotia, which implies a potential total return of 12.3 per cent over the next year.
Among analysts tracked by Bloomberg, three others have hold recommendations on Scotia, while nine say it’s a buy, and one has a sell recommendation.
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