(Bloomberg) -- Bank of Montreal shares surged the most in more than four years as confidence the worst of the lender’s credit issues was now behind it prompted two buy-equivalent upgrades.
Scotiabank analyst Meny Grauman raised his recommendation on Bank of Montreal to sector outperform, and lifted his price target nearly 9% to C$160, the highest among analysts tracked by Bloomberg. Meanwhile, CIBC Capital Markets analyst Paul Holden upped his rating to outperformer.
Shares in Bank of Montreal jumped as much as 5.6% in Toronto, the biggest intraday gain for the Canadian lender since August 2020. The stock now has six buy recommendations, eight holds and one sell, according to data compiled by Bloomberg.
Credit issues have plagued Bank of Montreal all year, resulting in the stock’s underperformance relative to most of its peers. They also led to yet another earnings miss in the fourth quarter on Thursday. However, on an earnings call, Chief Executive Officer Darryl White told investors that problems with credit had now been “contained,” and that the bank expects a moderation in losses through 2025.
“This does not mean that BMO’s credit story will fully normalize in 2025, but there is a strong signal that the worst is behind this bank, and the market is certainly acknowledging that,” Scotiabank’s Grauman wrote in a note published on Thursday after the markets closed. “This year’s surprise on credit was worrisome, but we now have confidence that we can begin to put it in the rear-view mirror.”
While Bank of Montreal had a “bad” quarter and year, CIBC’s Holden said credit losses should be on a “downward trajectory” from here. Furthermore, Holden expects credit losses to gradually improve through 2025, noting that this should benefit earnings per share growth. He raised his price target on the stock to C$150 from C$134.
Another source of confidence for Grauman comes across the border, as the analyst points to the material improvement in macroeconomic trends in the US over the past few quarters, particularly in wake of the Trump election. Bank of Montreal expanded its US footprint with the purchase of San Francisco-based Bank of the West last year.
“We have always believed in BMO’s US story, and recent developments only make the Bank of the West acquisition more exciting,” Grauman said.
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