Favourable view of BMO... Stifel analyst Mike Rizvanovic sees an improving operation environment for Canadian banks, pointing to “a notable tailwind around rising rates and benign credit conditions supporting further PCL recoveries that are not fully baked into expectations.”
“Strong excess capital, which varies among the banks, is an added benefit we expect will be deployed into buybacks, with M&A remaining a potential catalyst,” he added. “While we don’t dismiss some notable headwinds in the near term (uncertain economic recovery; inflation risks) and longer term (open banking pressuring fee-based revenue), we believe the Big Six will deliver high-single digit EPS growth in F2023, following a relatively flat F2022 skewed by last year’s sizable PCL recoveries.”
In a research report released Friday, Mr. Rizvanovic, previously at BMO Nesbitt Burns, initiated coverage of the sector, seeing “modest” upside to current price-to-earnings-multiples and expressing a preference for “discounted names among the Big Six.”
He rates BMO as a “buy” with a $170 target. The average on the Street is $161.03, according to Refinitiv data.
“We have a favorable view of BMO’s U.S. business and the added scale from the Bank of the West acquisition, which provides sizable synergy potential,” he said. “Other near-term catalysts for BMO include more capacity for PCL recoveries vs. peers and continued outperformance in Capital Markets. Despite what we believe is a superior medium-term growth outlook, BMO trades at a sizable relative discount of 11 per cent to the group (on consensus F2023 EPS), which we do not believe is justified, providing a favorable entry point for investors.”