A BMO sign is seen in Ottawa on Monday, July 11, 2022. The photo was taken by Sean Kilpatrick for The Canadian Press.
The Bank of Montreal (BMO) experienced a stock price surge on Wednesday following a significant endorsement from RBC Capital Markets. RBC elevated its price target for BMO shares by over 20%, raising its rating from "Sector Perform" to the more optimistic "Outperform."
BMO’s financial challenges came into focus late last year when the Toronto-based bank set aside a hefty $1.5 billion in its fourth-quarter earnings to manage potential loan defaults. This marked a steep rise compared to the $446 million allocated during the same period in 2023. Analysts initially anticipated a provision of around $1.04 billion.
At the time, BMO's Chief Risk Officer Piyush Agarwal reassured investors during an earnings call, stating that while provisions may remain elevated, the fourth quarter of 2024 likely represented the peak of such measures.
RBC analyst Darko Mihelic expressed a more optimistic outlook, suggesting that BMO’s credit-related concerns are nearing resolution. Mihelic highlighted specific loans from 2021 that were responsible for the heightened credit losses in 2024, indicating that the worst of the issue is likely behind the bank.
In his latest client note, Mihelic raised his price target for BMO shares listed on the Toronto Stock Exchange from $133 to $161. This bullish sentiment accompanied a stock rating upgrade to “Outperform.” On Wednesday, BMO shares closed at $141.55, reflecting a 1.75% increase and outpacing the broader BMO Equal Weight Banks Index ETF.
Other financial institutions have also expressed confidence in BMO’s performance. Analysts from Scotiabank and CIBC issued upgrades shortly after the bank’s fourth-quarter results were released on December 5.
Over the past year, BMO's stock has risen by approximately 6.7%, underperforming peers such as Royal Bank of Canada, CIBC, and Bank of Nova Scotia. Meanwhile, TD Bank has faced an 8% drop, attributed to a U.S. anti-money laundering investigation.
As BMO navigates past its credit hurdles, investor optimism appears to be on the rise, bolstered by multiple upgrades and a positive outlook from major market players.
