BMO... Top Pick BofA’s preview of Canadian bank earnings features an upgrade for Toronto-Dominion Bank a downgrade for Royal Bank of Canada, and Bank of Montreal listed as top pick.
" Group valuation at 11.2x/10.8x 2022/23e EPS and 1.6x YE22e P/Book in reasonable territory ahead of a pick-up in customer activity, rising interest rates, start of a new dividend hike cycle and buybacks … The current situation is ideal for TD to outperform given the optionally from rising interest rates (Schwab offers an added kicker), rebounding credit card balances and excess capital. Moreover, we believe that the recent reshuffle in leadership ranks could energize strategy execution (significant market share opportunity in the US, capital markets). We also consider TD as well positioned to strike a potential bank M&A deal in the US … we view RBC-RY as a best-in-class franchise and one that is particularly well positioned for an increasingly digital banking world, we see the lack of idiosyncratic catalysts combined with a premium valuation as limiting the potential for stock outperformance … BMO continues to offer an attractive risk/reward given the potential for superior top line revenue/loan growth and management’s laser focus on ROE optimization. We think BMO is also likely to announce among the larger dividend increases given a low payout ratio (33% of FY21e EPS) vs management’s approx. 45% target… …LatAm concerns mostly baked into Scotia-BNS”