Financial Review: Bank of Nova Scotia (NYSE:BNS) and HDFC Bank (NYSE:HDB)

Bank of Nova Scotia (NYSE:BNS) and HDFC Bank (NYSE:HDB) are both large-cap finance companies, but which is the superior stock? We will compare the two businesses based on the strength of their institutional ownership, earnings, valuation, analyst recommendations, dividends, profitability and risk.

Analyst Recommendations

This is a breakdown of recent recommendations and price targets for Bank of Nova Scotia and HDFC Bank, as provided by MarketBeat.

	Sell Ratings	Hold Ratings	Buy Ratings	Strong Buy Ratings	Rating Score
Bank of Nova Scotia	0	5	4	0	2.44
HDFC Bank	1	0	1	1	2.67

Bank of Nova Scotia presently has a consensus price target of $86.00, indicating a potential upside of 33.58%. Given Bank of Nova Scotia’s higher probable upside, equities analysts clearly believe Bank of Nova Scotia is more favorable than HDFC Bank.

Valuation & Earnings

This table compares Bank of Nova Scotia and HDFC Bank”s gross revenue, earnings per share (EPS) and valuation.

	Gross Revenue	Price/Sales Ratio	Net Income	Earnings Per Share	Price/Earnings Ratio
Bank of Nova Scotia	$55.90 billion	1.43	$5.70 billion	$3.72	17.31
HDFC Bank	$55.70 billion	3.12	$7.88 billion	$1.63	20.90

HDFC Bank has lower revenue, but higher earnings than Bank of Nova Scotia. Bank of Nova Scotia is trading at a lower price-to-earnings ratio than HDFC Bank, indicating that it is currently the more affordable of the two stocks.

Insider and Institutional Ownership

49.1% of Bank of Nova Scotia shares are owned by institutional investors. Comparatively, 17.6% of HDFC Bank shares are owned by institutional investors. 1.0% of HDFC Bank shares are owned by insiders. Strong institutional ownership is an indication that hedge funds, large money managers and endowments believe a company will outperform the market over the long term.

Dividends

Bank of Nova Scotia pays an annual dividend of $3.23 per share and has a dividend yield of 5.0%. HDFC Bank pays an annual dividend of $0.32 per share and has a dividend yield of 0.9%. Bank of Nova Scotia pays out 86.8% of its earnings in the form of a dividend, suggesting it may not have sufficient earnings to cover its dividend payment in the future. HDFC Bank pays out 19.6% of its earnings in the form of a dividend. Bank of Nova Scotia has raised its dividend for 14 consecutive years. Bank of Nova Scotia is clearly the better dividend stock, given its higher yield and longer track record of dividend growth.

Profitability

This table compares Bank of Nova Scotia and HDFC Bank’s net margins, return on equity and return on assets.

	Net Margins	Return on Equity	Return on Assets
Bank of Nova Scotia	9.74%	11.61%	0.62%
HDFC Bank	14.49%	11.60%	1.60%

Risk & Volatility

Bank of Nova Scotia has a beta of 1.16, indicating that its share price is 16% more volatile than the S&P 500. Comparatively, HDFC Bank has a beta of 0.63, indicating that its share price is 37% less volatile than the S&P 500.

About Bank of Nova Scotia

The Bank of Nova Scotia provides various banking products and services in Canada, the United States, Mexico, Peru, Chile, Colombia, the Caribbean and Central America, and internationally. It operates through Canadian Banking, International Banking, Global Wealth Management, and Global Banking and Markets segments. The company offers financial advice and solutions, and banking products, including debit and credit cards, chequing and saving accounts, investments, mortgages, loans, and insurance to individuals; and retail automotive financing solutions. It also provides business banking solutions comprising lending, deposit, cash management, and trade finance solutions to small, medium, and large businesses. In addition, it provides wealth management advice and solutions, including online brokerage, mobile investment, full-service brokerage, trust, private banking, and private investment counsel services; and retail mutual funds, exchange traded funds, liquid alternatives, and institutional funds. The Bank of Nova Scotia was founded in 1832 and is headquartered in Toronto, Canada.

About HDFC Bank

HDFC Bank Limited provides banking and financial services to individuals and businesses in India, Bahrain, Hong Kong, and Dubai. The company operates in three segments: Wholesale Banking, Retail Banking, and Treasury Services. It accepts savings, salary, current, rural, public provident fund, pension, and demat accounts; fixed and recurring deposits; and safe deposit lockers, as well as offshore accounts and deposits, and overdrafts against fixed deposits. The company also provides personal, home, car, two-wheeler, business, doctor, educational, gold, consumer, and rural loans; loans against properties, securities, fixed deposits, rental receivables, and assets; loans for professionals; government sponsored programs; and loans on credit card, as well as working capital and commercial/construction equipment finance, healthcare/medical equipment and commercial vehicle finance, dealer finance, and term loans. In addition, it offers credit, debit, prepaid, and forex cards; payment and collection, export, import, remittance, bank guarantee, letter of credit, trade, hedging, and merchant and cash management services; insurance and investment products. Further, the company provides short term finance, bill discounting, structured finance, export credit, loan repayment, and documents collection services; online and wholesale, mobile, and phone banking services; unified payment interface, immediate payment, national electronic funds transfer, and real time gross settlement services; and channel financing, vendor financing, reimbursement account, money market, derivatives, employee trusts, cash surplus corporates, tax payment, and bankers to rights/public issue services, as well as financial solutions for supply chain partners and agricultural customers. It operates branches and automated teller machines in various cities/towns. The company was incorporated in 1994 and is headquartered in Mumbai, India.