Canaccord Genuity has reaffirmed its Buy rating on Bank of Montreal (BMO) just days before the Canadian lender is set to report its fiscal second-quarter results. Analyst Matthew Lee maintained the positive stance, giving BMO a fresh analyst endorsement as the stock trades near its 52-week high. The call comes amid a broader rally in Canadian bank stocks, with the financial sector recently lifting the S&P/TSX Composite Index.
BMO's Toronto-listed shares closed at C$220.06 on May 21, up 1.49% and just shy of a 52-week high of C$220.70. The stock has surged 23.5% year-to-date, reflecting strong investor sentiment. The earnings report, scheduled for May 27 before the market opens, will be a key test for the stock's momentum.
However, the analyst consensus remains mixed. According to FactSet estimates, the average 12-month price target for BMO has edged up to $155.12 from $154.33, but the rating distribution shows 4 Buy ratings, 8 Holds, and 3 Sells among 15 analysts. This divergence highlights uncertainty about the bank's near-term prospects, especially given its recent run-up.
BMO enters the earnings print with improved credit metrics. In the first quarter, the bank reported adjusted net income of C$2.55 billion, or C$3.48 per share, with provisions for credit losses falling to C$746 million from C$1.01 billion a year earlier. Its Common Equity Tier 1 (CET1) ratio stood at 13.1%, a key measure of capital strength. CEO Darryl White noted that credit is well-managed and in line with expectations, while wealth management and capital markets segments, along with its U.S. operations, contributed to the quarter's performance.
Management has been actively reshaping the portfolio. On May 11, BMO agreed to sell its transportation finance and vendor finance businesses to Stonepeak, covering a combined loan and lease portfolio of approximately C$14.5 billion in the U.S. and Canada. The transaction is expected to boost BMO's CET1 ratio by about 28 basis points, though it will also incur a roughly C$900 million after-tax charge in the third quarter. Aron Levine, president of BMO U.S., said the move is part of a strategy to reallocate capital toward areas with strong long-term value creation potential.
Other analyst calls underscore the mixed sentiment. Bank of America Securities raised its BMO target to C$224 from C$210 on May 19 but maintained a Hold rating. Raymond James increased its target to C$227 from C$214 on May 12 and kept a Buy. In contrast, Jefferies held BMO at Hold with a C$196 target on May 20. These divergent views suggest that while some see upside, others caution about the stock's elevated valuation.
Lee's coverage also includes Bank of Nova Scotia and Toronto-Dominion Bank, placing BMO within a broader Canadian bank basket where investors are weighing credit costs, U.S. exposure, and the sustainability of the recent share price rally. The Stonepeak deal, while potentially beneficial, carries risks tied to regulatory approvals, business performance, and macroeconomic conditions such as interest rates and exchange rates.
The share rally leaves little room for disappointment. If the May 27 results reveal slower loan growth or an increase in credit reserves, the stock could face downward pressure. For now, Canaccord's Buy rating keeps BMO on the constructive side of the analyst ledger, but the real test will be whether the upcoming numbers justify a stock already trading near its peak.
