An analyst who covers Canada's Big Six lenders said Bank of Nova Scotia and Bank of Montreal are the best-looking buys as their shares trade at sizable discounts to historical norms.
Scott Chan at Canaccord Genuity assessed the bank stocks against his outlook for pre-tax, pre-provision income . That’s a measure of profitability which sets aside the often volatile impact of funds moved in and out of loan-loss reserves. PTPP took on greater importance for analysts during the pandemic as the banks set aside billions of dollars for loans that they feared could go bad. Much of that money was later moved back into banks’ income statements.
Based on his PTPP estimates for the 2023 fiscal year, Chan assessed Bank of Nova Scotia to be the cheapest of the stocks, as it trades at a 31 per cent discount to historical averages over the last 15 years. BMO isn't far behind at a discount of 25 per cent. Adding to the appeal of BMO, Chan estimates its PTPP per share will surge 17 per cent in the next fiscal year, which would outpace the other banks.
He has buy recommendations on both of those stocks, as well as Canadian Imperial Bank of Commerce. He has hold ratings on Royal Bank of Canada, Toronto-Dominion Bank, and National Bank of Canada.
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