Top picks in bank stocks from a Scotiabank analyst as earnings reports imminent

Daily roundup of research and analysis from The Globe and Mail’s market strategist Scott Barlow

Cautious on BMO

Scotiabank strategist Mike Rizvanovic previewed earnings for the major banks,

“For the large banks we expect EPS to decline 6 per cent quarter-over-quarter but to increase 20 per cent year-over-year, with our estimates for the quarter generally in-line with consensus expectations. With respect to key earnings drivers we are forecasting (1) a roughly stable PCL [provisions for credit losses] ratio that is in line with recent guidance, supported by minimal changes in macroeconomic indicators; (2) NIMs [newt interest margins] to hold steady with a bit of potential upside on rate hedging; (3) modest loan growth; (4) an uptick in expenses but year-over-year operating leverage to remain positive; and (5) more moderate earnings in Capital Markets, albeit with upside surprise potential. Positioning Heading Into the Quarter: Heading into Q4 earnings we are most optimistic on CM where we expect to see another clean quarter with strong execution. We also have a favorable view on NA, with potential catalysts on new disclosure for revenue synergies related to CWB, which we don’t believe is currently captured in consensus estimates, and a more detailed plan on capital deployment. We are a bit cautious on BMO given the bank’s elevated valuation multiple and recent run-up in its share price. Among the smaller banks, we are very cautious on EQB … As of 11/21/2025, the large Canadian banks traded at a market cap-weighted PE multiple of 13.2 times on F2026 consensus EPS estimates. While that is above the group’s historical 10-year average multiple of 11.1 times, the multiple on F2027 consensus, which we use to value the group, is far lower at 11.9 times, reflecting expectations for solid 8-per-cent EPS growth”

Shrinking industrial sector

BMO chief economist Doug Porter quantified the declining Canadian industrial sector,

“Canadian manufacturing sales are estimated to have retreated 1.1 per cent month-over-month in October, reversing part of the nice 3.3-per-cent bounce in the prior month. If realized, that will leave sales barely above year-ago levels, and down in volume terms. Given this year’s deep trade uncertainty and the tariffs on key factory sectors, it’s unsurprising that real manufacturing activity will decline about 3 per cent this year. The share of manufacturing output in Canada has dropped to a little less than 9 per cent of real GDP. That’s down from a nearby peak of just over 16 per cent in 2000, which had been fueled by the twin engines of record auto production and the internet boom. What’s especially notable in recent years is that factory output was drifting lower even before this year’s trade trauma (which has just piled on the pain). That was not obviously the case in the U.S. economy, where manufacturing output has been rising and still accounts for just over 10% of GDP”

“BMO: “A post-industrial economy?”” – (chart, excerpt) Bluesky

Initiation on bank sector

Raymond James analyst Stephen Boland initiated coverage on Canadian banks but does not expect a lot of excitement form the sector,

“we would characterize our stance as relatively neutral on the banks. While long-term we remain positive, most of the Big 6 are trading near peak P/E multiples, leaving the group sensitive to shifts in market sentiment — particularly around the credit outlook. At the same time, the banks are well capitalized, maintain elevated reserves, and benefit from diversified income streams, which should help them weather any possible credit pressures. That said, we believe NIMs [net interest margins] may peak in 2026, expect housing activity to remain subdued though gradually improving, and trading revenues to moderate following several years of elevated market activity. Consequently, near-term earnings growth appears more predicated on PCLs normalizing from recent levels — a path that remains uncertain, though nonetheless reflected in current valuations, in our view. Royal Bank of Canada (Outperform, C$229.00 target): We are positive on RBC for its leading ROE, unmatched scale, and strong management team. We also believe RBC’s diversified business mix and lower lending exposure leaves it less vulnerable than peers … Bank of Nova Scotia (Outperform, C$108.00 target): After several years of relative underperformance, Scotiabank’s recent results are showing a number of encouraging developments. Under new management, the bank has scaled back exposure to underperforming markets, boosting profitability across its International operations and keeping performance ahead of the bank’s 2023 Investor Day targets. Global Banking and Markets also continues to demonstrate strength, with a rising ROE and growth in the important U.S. market”

Bluesky post of the day

Diversion

“Why are so many kids calling in sick for school?” – (Video) CBC