Bank of Nova Scotia underwhelmed investors when it reported its fiscal first quarter results on Tuesday, even though it topped expectations and raised its quarterly dividend by 6 per cent. Unlike its peers, which saw their share prices bounce after reporting their first quarter results earlier in the season, Scotiabank shares slumped 1.4 per cent - and they were down again on Wednesday in mid-morning trading.
However, Michael Goldberg, an analyst at Desjardins Securities, is maintaining his "top pick" recommendation on the stock, and raised his target price to $64 from $61 - even though the bank's earnings on a per-share basis were below his expectations.
The dividend hike was earlier than expected. And even though the payout ratio of about 49 per cent is at the upper end of its 40-to-50 per cent range, he expects another bump with its fiscal fourth-quarter results.
Meanwhile, its overall operating profit growth also topped his forecast, with growth of 2 per cent over last year and 10 per cent over the previous quarter.
"Scotia's traditional, simple banking model with diversified revenue streams from diversified geographies has worked well to provide stable results," Mr. Goldberg said.
"Scotia's global wealth management segment does not yet include the results from the acquisition of DundeeWealth, which closed on February 1, 2011. The first quarter to include DundeeWealth's contribution will be the second quarter of fiscal 2011. We also expect further mergers and acquisitions activity in Latin America and Asia, and expect those international initiatives to propel future earnings growth."
David Berman