Bank of Montreal (USA) BMO shares have gained 17 percent since February 29. Canaccord Genuity’s Gabriel Dechaine downgraded the rating for the company from Buy to Hold, while raising the price target from C$85 to C$86. The analyst commented that although the company’s fundamentals were strong, this was already priced into the shares.
Bank of Montreal reported healthy results, with strong commercial loan growth of 10 percent y/y and the second straight quarter of positive operating leverage.
US Business
The US business generated 22 percent earnings growth, with contributions from the GE acquisition. This business also achieved 8bps of y/y NIM expansion, backed by the recent Fed rate hike. “On an organic basis we estimate that BMO’s U.S. segment delivered earnings growth of 6% and operating leverage of 3%, both of which represent strong performance,” analyst Gabriel Dechaine wrote.
Canada Segment
Dechaine said that the company’s Canadian segment could witness pressure on margins, which could compress 4bps sequentially due to the Prime-BA narrowing, and tougher comps.
Limited Upside To Valuation
“While BMO offers several attractive investment attributes (e.g. lower Canadian consumer exposure, U.S. exposure), we are reluctant to stretch our target valuation multiple simply to “chase the stock”,” the analyst mentioned.
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