BMO Targets & Comments Though he deemed its fourth-quarter results as “good,” RBC Dominion Securities analyst Darko Mihelic expects Bank of Montreal (
) to see its revenue growth slow compared to its peers.
“BMO had very strong revenue growth of 9.7 per cent in 2021, above the peer average of 5.6 per cent, but we believe revenue growth will slow relative to peers in 2022,” he said in a research note released Monday. “We believe it will be tough for BMO to put out strong revenue growth relative to peers in 2022 given the sale of its EMEA business (which is expected to strip out 2 per cent of revenues), BMO will need very constructive markets to repeat which we do not assume, and interest rate sensitivity is higher at competitor banks. We forecast revenue growth to slow to 2.6 per cent in 2022 compared to our average forecast of 5.5 per cent for peers.”
Before the bell on Friday, BMO reported adjusted earnings per share of $3.33, exceeding the Street’s forecast of $3.21 but missing Mr. Mihelic’s estimate by 5 cents.
“Lower than expected adjusted EPS mainly reflected lower than forecast pre-tax preprovision earnings (PTPPE) partly offset by lower forecast credit losses,” he said. “On a segmented basis, U.S. P&C, Wealth Management and Corporate came in below our forecast, partly offset by better than forecast results in Canada P&C.”
Raising his core EPS estimate for 2022 to $14.05 from $13.96 in 2022 and keeping a $14.68 projection for 2023, Mr. Mihelic increased his target price for shares of BMO to $154 from $146, maintaining a “sector perform” rating. The average on the Street is $151.86, according to Refinitiv data.
“We roll forward our valuation to our 2023 core EPS estimate and we maintain our forward target P/E multiple of 10.5 times,” said Mr. Mihelic. “Changes to our model reflect Q4/21 actual results, and adjustments to our Wealth forecasts to remove the EMEA Asset Management business. We lower our impaired provisions for credit losses (PCL) forecasts in 2022 for U.S. P&C, Capital Markets, and Canada P&C but increase our impaired PCL forecasts in 2023 for Canada P&C. We adjust our efficiency forecasts for Capital Markets to assume lower expenses. We also make other tweaks to our non-interest income growth forecasts and loan growth assumptions.”
Elsewhere, Desjardins Securities’ Doug Young bumped up his target to $150 from $146 with a “buy” rating.
“PTPP earnings were 2 per cent below our estimate, mainly due to higher non-interest expenses (NIX),” said Mr. Young. “However, management is confident it can keep NIX flat for FY22. The outlook for loan growth remains positive and management expects that as supply chain and labour issues begin to fade in 2022, it can drive higher commercial loan growth. We increased our estimates and our target price.”
Others making target changes include:
* Canaccord Genuity’s Scott Chan to $160 from $152 with a “buy” rating.