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On Monday, BMO Capital Markets updated its stance on Laurentian Bank of Canada, raising the price target to Cdn$31.00 from the previous Cdn$28.00. The firm has maintained a Market Perform rating on the bank's stock. The adjustment follows the bank's reported adjusted cash earnings per share (EPS) of $0.89, which exceeded BMO Capital's estimate as well as the consensus of $0.83 and $0.87, respectively.
The analyst attributed the better-than-expected performance primarily to improved credit quality, with credit loss provisions at 12 basis points (bps), which was more favorable than the anticipated 20 bps. Additionally, a lower tax rate contributed to the strong results. This was despite a decline in revenue, attributed to a 6% year-over-year decrease in loan balances and shrinking margins, which stood at 177 bps compared to an expected 180 bps.
Laurentian Bank's Common Equity Tier 1 (CET1) ratio, which is a measure of bank solvency, remained stable quarter-over-quarter at 10.9%. The bank's dividend also remained unchanged at $0.47. The new price target of Cdn$31.00 is approximately 0.5 times BMO Capital's 2026 estimated book value per share (BVPS) for Laurentian Bank.
The report reflects a cautious optimism, recognizing the bank's ability to surpass earnings expectations but also noting the challenges it faces with lower loan balances and margins. The steady CET1 ratio suggests a solid capital position, while the unchanged dividend points to a consistent return for shareholders. The updated price target provides a new benchmark for investors looking at the bank's future financial performance.
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