What is BNS.TO's Intrinsic value?

Bank of Nova Scotia (BNS.TO) Intrinsic Value Analysis

Executive Summary

As of July 16, 2025, Bank of Nova Scotia's estimated intrinsic value ranges from $52.82 to $75.03 per share, depending on the valuation methodology applied.

Valuation Method Fair Value (USD) Implied Upside/Downside
Dividend Discount Model (Multi-Stage) $75.03 +0.3%
Dividend Discount Model (Stable) $52.82 -29.4%

Is Bank of Nova Scotia (BNS.TO) undervalued or overvalued?

With the current market price at $74.79, the stock appears to be moderately overvalued.

Understanding Intrinsic Value

Intrinsic value represents the "true" worth of a company based on its fundamentals rather than market sentiment. We've employed multiple methodologies to triangulate Bank of Nova Scotia's intrinsic value, including:

  1. Dividend Discount Model (DDM): Values the company based on expected future dividend payments

Weighted Average Cost of Capital (WACC)

The cost of capital is a critical factor in valuation models, representing the required return for investors.

WACC Component Low High
Long-term bond rate 3.2% 3.7%
Equity market risk premium 5.1% 6.1%
Adjusted beta 0.91 1.48
Cost of equity 7.8% 13.2%
Cost of debt 5.0% 5.0%
Tax rate 21.0% 21.7%
Debt/Equity ratio 2.63 2.63
After-tax WACC 5.0% 6.5%

Valuation Methods

2. Dividend Discount Model (DDM)

The DDM values a company based on its expected future dividend payments. We used two approaches:

Multi-Stage DDM:

  • Current payout ratio: 86.7%
  • Stable payout ratio: 90.0%
  • Growth transition: 5 years
  • Cost of equity: 10.5%
  • Long-term growth rate: 1.0%
  • Fair value: $75.03 (0.3% from current price)

Stable DDM:

  • Stable payout ratio: 70% (Low) to 90% (High)
  • Cost of equity: 13.2% (Low) to 7.8% (High)
  • Long-term growth rate: 0.5% (Low) to 1.5% (High)
  • Fair value range: $29 to $76
  • Selected fair value: $52.82 (-29.4% from current price)

Key Financial Metrics

Metric Value
Market Capitalization $93155M
Enterprise Value $315576M
Trailing P/E 14.03
Forward P/E 11.19
Trailing EV/EBITDA 0.00
Current Dividend Yield 618.78%
Dividend Growth Rate (5Y) 5.60%
Debt-to-Equity Ratio 2.63

Investment Decision Framework

To determine the most reliable intrinsic value estimate, we weigh each valuation method based on:

  1. Forecast Certainty: DCF methods rely on long-term projections, while earnings power value focuses on current normalized earnings
  2. Business Model Alignment: Dividend models are more appropriate for mature companies with established dividend policies
  3. Historical Accuracy: How well each method has predicted fair value historically

Valuation Weight Matrix

Valuation Method Weight Weighted Value
Dividend Discount Model (Multi-Stage) 57% $15.01
Dividend Discount Model (Stable) 43% $7.92
Weighted Average 100% $65.51

Investment Conclusion

Based on our comprehensive valuation analysis, Bank of Nova Scotia's intrinsic value is $65.51, which is approximately 12.4% below the current market price of $74.79.

Key investment considerations:

  • Historical dividend growth of 5.60%

Given these factors, we believe Bank of Nova Scotia is currently moderately overvalued with the potential for long-term appreciation based on the company's growth trajectory and financial strength.