BARCLAYS CUTS BANK OF MONTREAL STOCK RATING TO EQUALWEIGHT

On Monday, Barclays (LON:BARC) analysts downgraded Bank of Montreal stock from Overweight to Equalweight. The analysts set a new price target of Cdn$144.00. This follows the completion of the Bank of the West acquisition and the achievement of targeted cost synergies of US$800 million. The stock currently trades at $108.29, near its 52-week high of $109.1, with InvestingPro data showing the stock is slightly undervalued based on its Fair Value analysis.

Bank of Montreal stock is now trading in line with its peers at 11.4 times the analysts’ 2026 earnings per share estimate, with a current P/E ratio of 13.77x. The bank aims to improve its return on equity to over 15%, up from 10.6% in the first half of 2025. This improvement is expected to be driven by better performance in its US segment, normalized provisions for credit losses, improved operating performance, and capital optimization. Notably, the bank has maintained dividend payments for 53 consecutive years, currently offering a 4.4% yield.

Despite these targets, the analysts noted that returns were under pressure in the second quarter of 2025 due to performing provisions for credit losses builds. This factor contributed to the decision to downgrade the stock rating.

The downgrade reflects the bank’s current valuation and the challenges it faces in achieving its financial targets, according to the analysts. Bank of Montreal continues to focus on enhancing its operational efficiency and capital management strategies.

In other recent news, BMO Financial Group reported its second-quarter 2025 earnings, revealing a slight beat on earnings per share (EPS) but a miss on revenue forecasts. The bank’s adjusted EPS came in at $2.62, exceeding the expected $2.50, while revenue reached $8.68 billion, falling short of the $8.77 billion forecast. Despite the revenue shortfall, BMO’s adjusted net income rose to $2 billion, marking a 1% increase year-over-year. Jefferies has raised its price target for Bank of Montreal to Cdn$150, maintaining a Hold rating, following the bank’s robust financial performance influenced by lower-than-anticipated credit provisions.

Additionally, BMO Financial Group announced executive appointments, including Aron Levine as Group Head and President of BMO U.S., and Nadim Hirji as Vice-Chair, BMO Commercial Banking, effective July 2025. These changes are part of a strategy to enhance decision-making and drive profitability in Canada and the United States. The bank also completed half of its share buyback program and increased its dividend by 5%, reflecting strong capital management. CEO Darryl White emphasized the importance of rebuilding return on equity as a primary goal, supported by robust capital ratios and healthy client relationships.

In the credit domain, BMO’s provisions for credit losses were significantly below expectations, contributing to its strong earnings performance. The bank’s ability to manage credit risks effectively has been a key factor in its quarterly results, with Jefferies highlighting the underlying improvement in core earnings. BMO’s leadership is confident in the appointed leaders’ ability to foster collaboration and integrate advanced technologies to enhance performance and client service.

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