BMO: Future Returns Will Reflect U.S. Branch Sales And Credit Recovery

The analyst price target for Bank of Montreal has been nudged higher by about C$5 to C$181. Analysts are factoring in modestly stronger revenue growth and profitability expectations, while still reflecting a higher perceived risk profile in their discount rates.

Analyst Commentary

Recent Street research reflects a mixed but generally constructive stance on Bank of Montreal, with several price target increases offset by a rating downgrade as investors reassess the bank's risk and growth profile following its U.S. credit challenges.

Bullish Takeaways

• Bullish analysts point to continued recovery in U.S. credit trends and improving provisions for credit losses, arguing that these dynamics can support stronger earnings momentum than currently embedded in consensus.
• Higher price targets in the C$179 to C$192 range suggest confidence that the bank can execute on its revenue growth strategy while expanding margins, particularly as operating efficiencies are realized.
• Supportive ratings and target hikes indicate a view that the stock still trades at a discount to its longer term earnings power, with scope for valuation to re-rate if profitability stabilizes above peers.
• Incremental optimism around fee income and cross border growth is seen as a potential upside driver to current forecasts, especially if management delivers consistent execution in core North American markets.

Bearish Takeaways

• Bearish analysts maintain more cautious ratings despite recent strength, arguing that the benefits from improved U.S. credit performance are largely priced into the shares at current levels.
• The shift to more neutral stances around the C$181 price target reflects concerns that elevated risk from U.S. operations and macro uncertainty could cap near term multiple expansion.
• Some expectations call for only modest upside to earnings as higher funding costs, competitive lending pressures and regulatory capital demands limit the pace of profitable growth.
• The balance of recent actions signals that while downside risk has eased, execution missteps or renewed credit deterioration could quickly pressure both valuation and target prices.

What's in the News

• Bank of Montreal has launched a sale process for some U.S. branches with roughly $6 billion in deposits, and is considering exiting markets such as Wyoming and the Dakotas, as part of a broader review of its U.S. footprint (Wall Street Journal).
• The bank plans to sell some of its U.S. branches, potentially in clusters, as it evaluates which American markets to exit, signaling a reshaping of its U.S. retail banking network (Reuters).
• BMO announced a 4 cent, or 2 percent, increase in its quarterly common share dividend to $1.67 per share for the first quarter of fiscal 2026, payable February 26, 2026, reflecting confidence in its capital position and earnings outlook.
• The bank unveiled Payment APIs through its Treasury and Payment Solutions group, enabling businesses across Canada and the U.S. to embed real time, secure payment capabilities directly into ERP, treasury platforms, and customer facing applications as part of its push into embedded finance.
• BMO announced the upcoming retirement of CFO Tayfun Tuzun in early 2026 and the appointment of Rahul Nalgirkar as Deputy CFO and then CFO effective January 1, 2026, ensuring leadership continuity in its finance function.

Valuation Changes

• The fair value estimate has risen slightly from CA$175.93 to CA$181.27, reflecting moderately improved expectations for the bank's long term earnings power.
• The discount rate has increased meaningfully from 7.71 percent to 8.46 percent, signaling a higher perceived risk profile and cost of equity.
• Revenue growth has edged higher from 6.85 percent to 7.19 percent, indicating a modestly stronger outlook for top line expansion.
• The net profit margin has improved slightly from 25.22 percent to 26.16 percent, suggesting incremental gains in underlying profitability.
• The future P/E multiple has fallen moderately from 15.37x to 14.29x, implying a more conservative valuation being applied to projected earnings.