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.
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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.
