Bank Of Montreal Will Outperform Peers, RBC Capital Markets Says In Upgrade

Bank of Montreal (USA) BMO notched a sell-side upgrade Wednesday, ahead of its July 30 earnings report.

The Analyst

RBC Capital Markets' Darko Mihelic upgraded Bank of Montreal from Sector Perform to Outperform and increased the Canadian dollar-denominated price target from the U.S. dollar equivalent of $91.06 to $94.09.  

The Thesis

Mihelic said he expects Bank of Montreal to post solid earnings growth relative to peers in 2019 and 2020. (See the analyst's track record here.) 

The analyst forecast EPS growth of 8.2 percent in 2019 and 5.1 percent in 2020 versus a peer average of 4.1 percent and 4.5 percent, respectively. Good revenue growth and cost control will be partially offset by higher provisions for credit losses, Mihelic said. 

RBC projects slower net interest income growth for Canadian banks due to the environment of slower GDP growth and rising interest rates in Canada. Mihelic said he sees less risk for Bank Of Montreal, as it has relatively lower exposure to Canadian personal and commercial banking than peers. 

The bank stock has room for improvement in valuation, as it trades at 11.4 times forward earnings versus a historical 12.6 times forward earnings. 

The Price Action

Bank of Montreal shares were up 0.48 percent at the time of publication Wednesday at $78.93. 

Related Links:

Benzinga's Top Upgrades, Downgrades For July 18, 2018

Fed Stress Test Shows Wells Fargo's Main Overhang Is Gone, Morgan Stanley Says In Upgrade

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