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Bank of Montreal Earnings Preview: Fair Price Target, Financial Upside

Published 2022-02-28, 01:32 p/m
Updated 2022-02-28, 01:46 p/m
© Reuters

© Reuters

By Ketki Saxena

Investing.com – The Bank of Montreal (TSX:BMO) (NYSE:BMO), a major Canadian bank with extensive operations across both the U.S. and Canada, is set to report first quarter 2022 earnings tomorrow. 

Over the past year, BMO has delivered 7.2% total price return and currently trades at a P/E multiple of 12.4 . BMO also offers a 3.66% dividend to shareholders. 

What to expect at BMO earnings tomorrow

EPS are estimated at C$3.27 on revenue of C$6.671 B, compared to EPS of 3.33 on revenue of C$6.573 B in the last quarter, and EPS C$3.06 on revenue of C$6.975 B this time last year. 

BMO has beaten earnings estimates in each of the past six quarters, posting a 3.5% surprise in Q4 2021. Estimates have seen recent upward revisions, including from National Bank of Canada analysts in the past week, after other Canadian banks including CIBC (TSX:CM) (NYSE:CM) RBC (TSX:RY) (NYSE:RY), and National Bank of Canada (TSX:NA) beat estimates to post solid growth. 

BMO Stock: Fair Price, Financial Upside 

As of 1:20 p.m E.T today, BMO shares were trading at C$143.52, down 1.30 (-0.90%) in the day’s trading, and with a 52-week range of C$104.20 - 153.03. Investing Pro models suggest a Fair Price target of C$167.54, representing a 16.8% financial upside. 

Compared to its peers, BMO, along with TD, is expected to be the greatest beneficiary of the anticipated rise in interest rates. Both banks are also set to benefit from high U.S exposure. 

BMO Benchmarks: Canadian Imperial Bank of Commerce (TSX:CM) (NYSE:CM), Royal Bank of Canada (TSX:RY) (NYSE:RY), Toronto Dominion Bank (TSX:TD) (NYSE:TD), Bank of Nova Scotia (TSX:BNS) (NYSE:BNS), National Bank of Canada (TSX:NA)

What to watch for in the Canadian Banking Sector

BMO is not the only big Canadian bank to report earnings tomorrow. The Bank of Nova Scotia is also expected to have its Q1 2022 earnings call tomorrow morning before the opening bell. TD will be the last of the big six Canadian banks to report Q1 earnings, concluding the season on Thursday. 

Bullish factors for Canadian banks before earnings: 

  • Demand for residential mortgage and commercial loan activity has grown despite anticipation of rate hikes

  • Once they come through, the rate hikes should have a major positive on net interest incomes and margins

Bearish factors for Canadian banks before earnings: 

  • Capital markets revenues, notoriously volatile, are expected to be significantly lower in the quarter

  • Expenses will likely have grown, due to wage growth, inflation, and capital outflows as banks invest heavily in technology

  • Fixed rates on mortgages have risen, but slower than short term rates, which determine borrowing costs

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