Thursday, August 24, 2006

Analysts Shrug at BMO Results

Financial Post, Duncan Mavin, 24 August 2006

Canada's big bank analysts are not an easy bunch to impress, as Bank of Montreal found out this week.

BMO delivered record-busting third-quarter net income on Tuesday, up 30% from a year ago to $710-million. The bank beat the street with cash earnings per share of $1.30, more than 9% above consensus estimates of $1.20 per share.

Yet the analysts hardly flinched.

"Although the bank did extremely well," said National Bank Financial analyst Rob Wessel in a note, "we have opted to maintain our underperform rating."

Mr. Wessel's take on the highlights from BMO's results was fairly typical.

"Excellent" earnings were helped by a number of one-off items, including the Mastercard initial public offering worth $25-million to the results, and income tax recoveries worth $26-million, he noted.

Also, BMO's provision for loan losses declined $24-million, or 36% to $42-million, but a forecast turn in the credit cycle is just delayed until later in 2007, said Mr. Wessel.

And stable excess capital of $2.4-billion only increases the risk of a dilutive acquisition, possibly to add to the bank's operations in the United States, he said.

Mr. Wessel raised his target for the bank's stock to $72 from $67. But, he said, the stock is "fully valued" at 12.3 times earnings (about the industry average.) Yesterday, the stock rose 35 cents to $66.70.

Nevertheless, an underperform rating is not a reflection of a negative outlook for BMO's future performance. "Rather," said Mr. Wessel, "We believe the other banks and lifecos will grow EPS faster allowing them to outperform BMO on a relative basis."