CashNews.co
Bank of Montreal (BMO.TO)(BMO) shares rose Friday as a majority of analysts looked past the bank’s weak fourth-quarter results and pinned their hopes on management’s confidence that damaging credit issues will begin to fade in 2025.
Analysts at Scotiabank and CIBC upgraded their rating on BMO’s stock Thursday afternoon, citing BMO guidance that credit issues have reached their peak. A wider range of analysts joined them in raising their price targets.
BMO shares were up over four per cent as at 11:15 a.m. Friday, trading at $145.66.
Jefferies analyst John Aiken was a less enthusiastic outlier, dropping the BMO price target from $130 to $126. Aiken writes that BMO’s valuation relative to other banks would rise only with demonstrated improvement to its credit performance.
“That said, once there is greater visibility, we would expect BMO to recover its premium multiple. However, we are maintaining our below-market target multiple, for now,” he wrote.
BMO’s credit issues were a defining aspect of its dismal third-quarter results, which were announced in August, leading to downgrades and causing the stock price to plunge around seven per cent.
CIBC Capital Markets analyst Paul Holden was blunt about BMO’s recent performance, noting that “it was a bad quarter and a bad year, with BMO significantly missing on credit-loss expectations.”
But he writes that CIBC’s upgrade of BMO from “neutral” to “outperformer” is “premised on declining credit losses, accelerating loan growth, stronger capital markets earnings, and the potential to generate the highest [earnings per share compound annual growth rate] over the next two to three years.”
CIBC raised its price target from $134 to $150. Scotia Capital pushed its target from $147 to $160 and upgraded the stock from “sector perform” to “sector outperform,” citing confidence that credit concerns will moderate, and pointing to high potential in some of BMO’s businesses.
“We have always believed in BMO’s U.S. story, and recent developments only make the [Bank of the West] acquisition more exciting,” analyst Meny Grauman wrote. “This year’s surprise on credit was worrisome, but we now have confidence that we can begin to put it in the rearview mirror, and so we upgrade the shares today.”
RBC raised its target from $106 to $133, with analyst Darko Mihelic seeing positive signs in BMO’s discussion of its credit situation.
“On the conference call, BMO called out some segments of clients onboarded around 2021 which caused the elevated credit losses in 2024 and alluded to improved processes including client selection, due diligence, underwriting criteria, and risk mitigation at inception,” Mihelic wrote. “We believe this may be an indication that BMO has isolated the problem and lends credibility to its PCL guidance that declines throughout 2025.”