BANK OF NOVA SCOTIA (BNS): what the price assumes
In the published model solve dated 2026-Q2, anchored at $87.11, BANK OF NOVA SCOTIA (BNS) is priced for 12.5% return on equity. boothcheck publishes no house fair value, target price, or buy/sell rating; individual model outputs and user-controlled scenarios are analytical inputs, not Boothcheck targets. Narrative composed 2026-07-24.
Generated: 2026-07-24 · Source: https://boothcheck.com/report/BNS
Headline
| Field | Value |
|---|---|
| Ticker | BNS |
| Company | BANK OF NOVA SCOTIA |
| Sector / Industry | Financial Services |
| Current price | $87.11/sh |
What The Price Assumes (Inversion)
The assumption today's price embeds, recovered by inverting the valuation.
| Field | Value |
|---|---|
| Inversion basis | financials |
| Price-to-book | 1.76x |
| Return on equity now | 9.0% |
The implied return on book is non-physical at this price-to-book and is suppressed as misleading. The price sits beyond a 11.7% return on equity sustained for 40 years and is not resolvable as a sustainable-ROE point. The rarity read below is the honest signal.
Solve inputs: computed at a 8.8% cost of equity; ROE searched up to the 11.7% ROE ceiling.
How unusual the bet is: extreme
| Reference | Value |
|---|---|
| vs own history | +0.46σ |
| cohort percentile (of 162 peers) | 81 |
| sustained it ~10 years at this level | 68% |
| implied end-window share | 0% |
Valuation X-Ray
The price is supported by earnings-power and relative-multiple value. A value/asset-supported name, not a pure growth bet.
How the valuation models price the stock relative to the market price. Price/FV above 1.0 means the market pays more than that lens defends (expensive); at or below 1.0 the lens can defend the price.
| Family | Median price/FV | Models | Reads |
|---|---|---|---|
| Asset | 1.43x | 3 | expensive |
| Earnings | 1.08x | 2 | expensive |
| Relative | 0.50x | 3 | justifies |
| Growth | 1.36x | 2 | expensive |
Families that justify the price: Earnings, Relative
The models below discount at their own flat-beta convention rates (cost of equity 9.3%, WACC 2.0%); the inversion above states its own rate.
Per-Model Detail (n=10)
| Model | Family | FV | Price/FV | Applicable | Methodology |
|---|---|---|---|---|---|
| DCF Perpetual Growth | Growth | — | — | no | — |
| Bank Fair Value (P/TBV) | — | $64.62 | 1.35x | yes | TBVPS $53.00 × 1.22x (ROE (TTM) 10.2% / CoE 9.3%, g=5.0% (sustainable: 65% retention × ROE, 5% cap; not the terminal-growth assumption)) |
| Relative Valuation | Relative | $58.94 | 1.48x | yes | P/E 11.84x (blended: static sector reference 10x + trailing (TTM) 16x), scenarios: 10.1x / 11.8x / 13.6x (bear / base = reference held flat / bull), EV/EBITDA N/Ax |
| Simple DDM | Growth | — | — | no | — |
| Two-Stage DDM | Growth | $128.04 | 0.68x | yes | Stage 1: 20% for 5yr, Stage 2: 3.5% perpetual |
| Simple Excess Return | Asset | $58.34 | 1.49x | yes | BV/sh $53.00, ROE (TTM) 10.2%, ke 9.3% |
| Two-Stage Excess Return | Asset | $61.12 | 1.43x | yes | 5yr excess ROE then converge to ke=9.3% |
| Discounted Future Market Cap | Growth | $42.82 | 2.03x | yes | Rev $40.4B, growth -8% (input: historical growth; tapered), Terminal P/S: 2.3x / 2.7x / 3.1x (bear / base = today's held flat / bull, cap 8x) |
| Peter Lynch Fair Value | Relative | $174.23 | 0.50x | yes | EPS $4.98, growth 35% (input: historical EPS growth), PEG=0.46 (Undervalued) |
| Margin Trajectory | Growth | — | — | no | — |
| Earnings Power Value | Earnings | — | — | no | — |
| Residual Income | Asset | — | — | no | — |
| Graham Number | Asset | $77.05 | 1.13x | yes | √(22.5 × EPS $4.98 × BVPS $53.00) — Graham's conservative floor |
| EV/EBITDA Relative | Relative | — | — | no | — |
| FCF Yield | Earnings | — | — | no | — |
| SBC-Adj FCF Yield | Earnings | — | — | no | — |
| Ben Graham Formula | Earnings | $160.62 | 0.54x | yes | EPS $4.98 × (8.5 + 2×15.0%) × (4.4 / 5.3%) |
| ROIC-Justified P/B | Asset | — | — | no | — |
| P/Sales Sector | Relative | — | — | no | — |
| PEG Fair Value | Relative | $186.67 | 0.47x | yes | EPS $4.98 × (PEG 1.5 × growth 25.0% (input: historical EPS growth)) → PE 37.5x |
| Earnings Yield | Earnings | $53.82 | 1.62x | yes | EPS $4.98 / required return 9.3% (Rf 4.3% + ERP 5.0%) |
| Funds From Operations Multiple | Relative | — | — | no | — |
| Clinical Phase NPV | Growth | — | — | no | — |
| Merton | Asset | — | — | no | — |
| V5 Mechanical | — | — | — | no | — |
Solvency
| Field | Value |
|---|---|
| Share count CAGR (dilution) | 0.5% |
Deposit/float-funded balance sheet: debt is funding, not corporate leverage, and GAAP operating cash flow follows loan flows. Net-debt, interest-coverage, and cash-burn lenses do not apply. The solvency frame for a financial is regulatory capital and payout capacity (CET1, stress buffer, dividends plus buybacks against earnings).
Bullet Takeaways
- All four of Scotiabank's businesses earned more in the quarter ended April 30, 2026 than a year earlier, and adjusted return on equity climbed to 13.2% from 10.4%, the clearest sign yet that the Latin American franchise has stopped being a drag.
- Credit is where that improvement could be undone: gross impaired loans reached C$7.61 billion, or 99 basis points of loans, and provisions ran at 66 basis points in the quarter.
- Shares change hands at about 1.8 times book value, the richest in their peer group, which puts unusual weight on the third-quarter print due August 25, 2026.
Bull Case
Banks are simple to judge and slow to fix. They earn a return on the shareholders' capital, they either cover the cost of that capital or they do not, and the gap closes over years rather than quarters. In the three months ended April 30, 2026, Scotiabank's adjusted return on equity was 13.2%, against 10.4% in the same quarter a year earlier. Close to three points of improvement in a year is not something a bank this size stumbles into.
The improvement is broad rather than concentrated. Canadian Banking earned C$935 million against C$613 million a year earlier, Global Wealth Management C$474 million against C$399 million, Global Banking and Markets C$457 million against C$413 million, and International Banking C$701 million against C$676 million, taking consolidated net income to C$2.63 billion from C$2.03 billion and diluted earnings per share to C$2.00 from C$1.48. Revenue rose and expenses rose more slowly, which pushed the productivity ratio, the Canadian bank's name for its efficiency ratio, down to 52.5% while pre-tax pre-provision earnings grew 20%.
The margin side is where the geography earns its keep. Net interest margin widened again in the quarter, helped by lower funding costs across Latin America and by inflation-linked income in Chile. A bank that gathers deposits in several currencies and lends in those same currencies is not running one spread against one central bank. It is running four banks, and they rarely have a bad year in unison.
Capital is the part of this argument that needs the least work. The common equity tier 1 ratio finished the quarter at 13.3%, and the surplus went out in both directions at once: a C$0.04 increase in the quarterly dividend, 6.4 million shares repurchased in the quarter, and C$7.5 billion returned to shareholders over the trailing twelve months. For a bank that is the whole balance-sheet case. Deposits fund the loans, the regulator polices the cushion, and what sits above the cushion is capital-return capacity.
Then there is the American position, which was bought rather than built. Instead of acquiring a US bank outright, Scotiabank holds a minority stake in KeyCorp, and told the market on July 22, 2026 that the stake would add roughly C$82 million to third-quarter net income, or about C$90 million adjusted for amortization of acquired intangible assets, reported on a one-month lag. That is a small figure next to what the bank earns in a quarter. It is also a foothold in the largest banking market on earth that carried no integration risk and consumed a fraction of the capital an outright purchase would have needed.
The obvious objection is that the market has already noticed. At about 1.8 times book value the shares carry the richest valuation in their cohort, and paying up for a bank exactly when its earnings inflect is a well-worn way to lose money. The counter is mechanical rather than hopeful: the capital ratio gives management the means to keep retiring stock while the improvement proves itself, and a bank earning in the low teens on equity is a structurally different asset from one earning in single digits. The multiple is a claim about which of those two this bank now is.
Bear Case
Price-to-book is not a valuation shortcut for a bank. It is a statement about return on equity wearing a multiple: pay a premium to book and you are asserting the bank will earn more on that book than the capital funding it costs, and will keep doing so. At about 1.8 times book value this one carries the highest such premium in its peer group, and the return that would justify the price does not resolve to a sustainable figure at all. It sits past the band of returns even the most durable large banks have held across multi-decade stretches. State the bet plainly and it is not that Scotiabank earns a good return. It is that it earns an exceptional one, indefinitely.
What the bank has actually been earning is a return on equity of about 9% on a trailing twelve-month basis. The April quarter's 13.2% is an adjusted figure covering three months, and the trailing window still carries the weaker prints that came before it. If the return settles back toward what has been demonstrated rather than what one quarter showed, the premium to book compresses, and there is nothing else inside a bank's price to absorb that. The shareholder takes it directly.
The methods used to triangulate a bank say much the same thing in different accents. Value it off book value and profitability and the price sits about 43% above where those methods land. Project the earnings recovery forward and the price still sits about 36% above where those methods land. Earnings power is the only lens the price is close to, about 8% above where those methods land. The comparison-based methods do sit above the price, but only by extending an earnings growth rate calculated from a year the bank spent absorbing charges, which is arithmetic about the recovery rather than a claim about the business.
Credit is the mechanism most likely to settle the argument. Gross impaired loans stood at C$7.61 billion at the end of the April quarter, up from C$7.25 billion three months earlier, and the gross impaired loan ratio moved from 95 to 99 basis points. Provisions ran at 66 basis points of loans in the quarter, 61 of which came from loans already impaired, and management expects impaired provisions to settle in the mid-50s in basis points for the balance of fiscal 2026. That is a forecast of improvement issued while the impaired balance was still climbing.
Some of the margin gain will not repeat either. Part of the quarter's expansion came from inflation-linked income in Chile and from lower funding costs in Latin America. Inflation-linked income is a windfall when prices run hot and a headwind when they cool. Currency does the same trick from the other side: earnings arrive in pesos, soles and US dollars and are reported in Canadian dollars, so a strong loonie can turn a good operating quarter into a mediocre reported one without anything changing inside the bank.
At home the concentration is the familiar Canadian one. Residential mortgage credit written against some of the most expensive housing in the developed world sits inside the segment that is both the largest earnings contributor and the source of the year-over-year jump the bull case leans on, measured against a quarter a year earlier that was itself weak. And the American position is a minority one: Scotiabank books its share of KeyCorp's earnings on a lag and has no say in how that bank runs its balance sheet. A stake is not a franchise. If the intention is eventually to own the whole thing, the capital for that has not been spent, and the price then will not be today's.
None of this says the bank is in trouble. It says the shares are priced as though the April quarter is the new baseline and whatever follows is better still.
Valuation
At $87.11, the New York quote prices a bank that keeps its books in Canadian dollars under IFRS and files a 40-F rather than a 10-K. The currency split is not a footnote: every operating figure below is Canadian, the share price is not, and the exchange rate moves the reported growth rate without anything happening inside the business.
For a bank, the price is one question wearing a multiple. At about 1.8 times book value, the market is paying a premium that only makes sense if the bank earns more on that book than its capital costs and keeps doing so for a long time. Work backward from the price and the required return does not land anywhere sustainable; it runs past the band the most durable large banks have held over the very long run, which makes it a bound rather than a figure. What the bank has been earning is a return on equity of about 9% on a trailing basis.
The methods disagree in a specific shape. Book value plus profitability, the normal way to read a bank off its balance sheet, leaves the price about 43% above where those methods land. Project the earnings recovery forward and the price sits about 36% above where those methods land. Only earnings power comes close, with the price about 8% above where those methods land. The comparison-based methods sit above the price, but reach that position by extending an earnings growth rate measured off a depressed prior year. Set that artifact aside and the price is supported by the earnings the bank produces today and by very little beyond them.
Against the cohort, the premium is the outlier rather than the profitability. BMO reported a 13.5% return on equity for its own quarter ended April 30, 2026 and a 13.0% common equity tier 1 ratio. Scotiabank's capital position is comparable at 13.3%. What separates the two in the market's pricing is not this quarter's profitability, and the price-to-book gap is where that separation shows up.
The balance-sheet read for a bank is not leverage. Deposits fund loans, and the coverage arithmetic applied to an industrial company means nothing here. What matters is the size of the regulatory cushion and what management does with the surplus above it. The cushion stood at 13.3% common equity tier 1, and the surplus went to a raised dividend and repurchases together, C$7.5 billion over the trailing twelve months. Set against that, the share count is about half a percent a year higher than it was four years ago, so buybacks are a recent instrument here rather than a long habit, and the dividend has carried most of the load.
What the price does not rest on is the balance sheet, which is not in question, or the current quarter's earnings, which are already inside it. It rests on the durability of a return the bank reached one quarter ago.
Catalysts
Third-quarter results arrive on August 25, 2026. Three lines in that release matter more than the headline number.
One of them is already half known. The bank told the market on July 22, 2026 that its stake in KeyCorp would contribute roughly C$82 million to third-quarter net income, or about C$90 million after adjusting for amortization of acquired intangible assets, reported on a one-month lag. Pre-announcing a minority stake's contribution is what a company does when it wants that line read separately from the operating result.
The second is credit. Management told analysts it expects provisions on impaired loans to settle in the mid-50s in basis points for the remainder of fiscal 2026, against 61 basis points in the April quarter. Gross impaired loans were still rising as of that quarter, so August is the first real test of the guide.
The third is the return itself. Management has said the bank remains on track for a return on equity above 14% in fiscal 2027. The current price leans on that path holding, and each quarter either narrows the distance to it or does not.
Capital return runs in the background. The quarterly dividend was raised by C$0.04 in the April quarter and buybacks continued alongside it, with 6.4 million shares retired in the three months.
Peer Cohorts (Per Segment, With Filing Citations)
Core business (reported)
- BMO (BANK OF MONTREAL /CAN/)
- (no filing in the citation store)
- USB (US BANCORP \DE\)
- (no filing in the citation store)
- PNC (PNC FINANCIAL SERVICES GROUP, INC.)
- (no filing in the citation store)
- TFC (TRUIST FINANCIAL CORP)
- (no filing in the citation store)
- CFG (CITIZENS FINANCIAL GROUP INC/RI)
- (no filing in the citation store)
- MTB (M&T BANK CORPORATION)
- (no filing in the citation store)
- WFC (WELLS FARGO & COMPANY/MN)
- (no filing in the citation store)
- BAC (BANK OF AMERICA CORP /DE/)
- (no filing in the citation store)
Methodology Note
- Priced-in inversion: the valuation is inverted on the current price to recover the operating-income growth, duration, and steady-state margin the price embeds (ROE for financials, FFO growth for REITs).
- Valuation x-ray: the valuation models, grouped into four families (asset, earnings, relative, growth). Each model is expressed as a price/FV ratio (distance from price), not a point fair-value estimate. The spread across families is the disagreement.
- Solvency: net cash/debt, net-debt-to-NOPAT, interest coverage, and share-count CAGR from EDGAR financials (net debt / FFO and fixed-charge coverage for REITs; regulatory-capital framing for financials).
- Peer cohorts: per-segment comparables with deep-linkable SEC filing citations.
Fundamentals sourced from SEC EDGAR filings. Current price from Databento. The priced-in inversion and valuation x-ray are computed by the boothcheck engine; narrative composed by AI from the structured data.
Sources
Scotiabank Q2 2026 earnings call · Scotiabank Q2 2026 results · Scotiabank press release, July 22, 2026 · BMO Q2 2026 results