Bank of Montreal BMO

Narrow-moat rated Bank of Montreal reported excellent fiscal third-quarter earnings, with EPS of CAD 3.44 representing solid year-over-year growth compared with adjusted EPS of CAD 1.85 last year and higher than last quarter’s EPS of CAD 3.13. Provisioning continues to be a major driver of improved earnings, coming in at a net benefit of CAD 70 million, a multi-year low and materially lower than the CAD 1.1 billion charge the bank took in the third quarter of 2020. This aligns with our view that the Canadian banks will be fine from a credit perspective and that better results should be the norm going forward. We still expect the return of fee growth and much lower provisions to drive solid earnings growth for the rest of the year, while the lack of a boost from lower provisioning will make for tougher comps for the Canadian banks in 2022. Bank of Montreal's fees continue to come in better than we were expecting. After decreasing our credit cost projections for 2021, decreasing certain expense line items, increasing some noninterest income items, and making some additional improvements to our balance sheet growth and net interest margin outlook, we have increased our fair value estimate to CAD 130/$103 per share from CAD 115/$94.