BMO’s Q3 Results Are Out: What Investors Need to Know

Bank of Montreal (TSX:BMO) stock looks like a great value after a muted post-earnings reaction.

Key Points
  • Bank earnings have mostly been strong, with Scotiabank leading the pack after a blowout quarter that sent the stock up 7% and back near all-time highs.
  • BMO also posted solid growth and announced a major share buyback, but after a big run it still looks close to fully priced, so it may take even better results to drive the stock higher.

It’s Canadian bank earnings season and, for the most part, it has been a rather decent showing against some pretty high expectations. Undoubtedly, the big banks aren’t created equal, with shares of Bank of Nova Scotia (TSX: BNS) pretty much winning this latest round of earnings, with an absolutely unbelievable blowout that sent shares up more than 7% in a single session of trade.

With shares of BNS back at (or at least around) all-time highs, questions linger as to whether the $157 billion bank can lead the way for the rest of the pack, even as the rest of the five report numbers that will pale in comparison to Bank of Nova Scotia’s outstanding number.

With its pivot away from international already paying dividends, questions linger as to whether investors should start rotating across the banks or just buy the broad basket.

In my humble opinion, staying the course with the best-in-breed names seems to make the most sense, especially as Canada’s top banks continue doing what they do best in this current climate: winning and in a huge way! Indeed, high expectations can be enough to derail just about any rally, but with continued performance from the Big Six heavyweights, I do think that the rally has permission to continue onward after solid results from across the board, with a standout quarter posted by the Bank of Nova Scotia.

A worker uses a double monitor computer screen in an office.

Source: Getty Images

Bank of Montreal

As for Bank of Montreal (TSX: BMO), its quarter wasn’t as impressive. Though it was still a very decent showing from a bank that could still have earnings momentum going into year-end. In my humble opinion, expectations for Bank of Montreal were quite a bit higher. And, with that, it was harder to move the needle markedly higher, even after a very respectable showing of its own.

In any case, Bank of Montreal’s third quarter saw adjusted net income rise by an applause-worthy 21% year over year. With a very impressive capital markets business running hot and continued strength in wealth management, it may come as a bit of a surprise as to why BMO shares weren’t flying high after the latest reveal.

Indeed, there was a bit of a dip going into the numbers, so it felt like investors tempered their expectations, especially given the red-hot run before the big Q3 reveal. Any way you look at it, Bank of Montreal reported a far better number than the reaction afterward would suggest, at least in my very humble opinion.

Even after the latest 7.5% drop from peak levels, BMO stock looks pretty much fairly valued, even a tad on the expensive side, still at 19.5 times trailing price-to-earnings (P/E). Does BMO deserve to trade at a premium, especially given its earnings momentum? Most definitely. But is a near-20 times trailing P/E ratio overdoing it just a bit?

I think that could be the case. For now, Bank of Montreal’s move to buy back up to 25 million shares could prove wise, even if they do look fully valued, even after that half correction.

The bottom line on BMO stock

Perhaps management sees it as wise if the big bank run isn’t over yet, even as the big banks look to take some well-deserved time off, as they look to get closer to a full-blown correction. In short, BMO’s quarter was strong, but it was expected to be strong. Now, the big question is whether the bank can keep it up, as investors come to expect more for paying more.

Fool contributor Joey Frenette has positions in Bank of Montreal. The Motley Fool recommends Bank of Nova Scotia. The Motley Fool has a disclosure policy.

More on Bank Stocks

Paper Canadian currency of various denominations
Stocks for Beginners

Your Broker Withholds 15% on U.S. Dividends: Here’s The Tax Credit That Gets It Back

U.S. dividend withholding depends on your account, while BMO shows how a Canadian stock can offer U.S. exposure.

Read more »

Hand Protecting Senior Couple
Stocks for Beginners

How Much Do You Actually Need to Retire in Canada?

The same retirement lifestyle can require very different savings balances once pensions and withdrawal taxes enter the calculation.

Read more »

An investor uses a tablet
Bank Stocks

Brokerage Account Basics: What Canadian Beginners Should Look For

New to investing in Canada? Learn to compare brokerage fees, pick a TFSA, RRSP or FHSA, and see why Royal…

Read more »

Safety helmets and gloves hang from a rack on a mining site.
Stocks for Beginners

Canada Lost 68,000 Jobs in September: The October 28 Rate Call Just Got Harder

September's job losses complicate the rate decision, while Scotiabank shows why borrowers' relief and bank earnings aren't the same thing.

Read more »

man looks surprised at investment growth
Stocks for Beginners

Maxed Out Your TFSA? The Account Where Canadian Dividends Are Taxed Less

A taxable account gives eligible Canadian dividends a tax credit, but the gross-up can affect retirement benefits.

Read more »

TFSA (Tax-Free Savings Account) on wooden blocks and Canadian one hundred dollar bills.
Bank Stocks

Don’t Let Unused TFSA Room Go to Waste Before You Retire

Unused TFSA contribution room can help Canadians boost their nest egg and retire with confidence.

Read more »

The RRSP (Canadian Registered Retirement Savings Plan) is a smart way to save and invest for the future
Stocks for Beginners

What $10,000 a Year in Your RRSP Becomes Over 30 Years

Annual $10,000 RRSP contributions could approach $791,000, but costs, contribution timing, and your tax refund can change the outcome.

Read more »

A worker gives a business presentation.
Stocks for Beginners

September Inflation Lands October 19: What It Means for Your Mortgage Rate

September inflation could change mortgage offers before the Bank of Canada acts. Here’s how to prepare without predicting the report.

Read more »