On Friday, Scotiabank (TSX:BNS) made a bullish move on shares Bank of Montreal (BMO:CN) (NYSE: BMO), raising its stock rating from Sector Perform to Sector Outperform and increasing the price target to C$160.00 from the previous C$147.00. This upgrade comes in the wake of Bank of Montreal's recent earnings call, where management provided guidance on credit that appeared to reassure analysts about the bank's future performance.
The bank's management expressed confidence that the impaired Provision for Credit Losses (PCL) ratio has peaked this quarter and anticipates a moderation through 2025.
While this does not suggest an immediate normalization of BMO's credit story by 2025, it does send a positive signal that the worst may be over for the bank. The market has responded favorably to this outlook, acknowledging the bank's potential to recover from its credit challenges.
Scotiabank's optimism is further bolstered by recent macroeconomic trends in the United States, which have seen improvements over the past few quarters. The election of President Trump has been cited as a contributing factor to the more favorable economic environment. The bank's acquisition of Bank of the West (BoW) is also seen as more promising in light of these developments.
Despite the surprises in credit performance that have caused concern this year, Scotiabank now believes that the issues can be put behind as the bank moves forward. The upgrade reflects a renewed confidence in Bank of Montreal's resilience and its U.S. market strategy. The analyst's commentary suggests that while skepticism may remain regarding the potential for future credit surprises, the overall outlook for BMO is now more positive.
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