Loans, higher rates to help Bank of Montreal (BMO) second quarter earnings

Bank of Montreal BMO is expected to announce its results for the second quarter of fiscal 2022 (ended April 30) on May 25, before the opening bell. The company’s earnings are expected to have seen a year-over-year decline, while revenues are expected to have improved.

In the most recently reported quarter, the company’s earnings beat Zacks’ consensus estimate and rose from the year-ago quarter figure. Improved income and increased demand for loans supported results.

Bank of Montreal has an impressive track record of earnings surprises. Its earnings have exceeded the Zacks consensus estimate in each of the past four quarters, with the average surprise being 14.54%.

Bank of Montreal prices and BPA surprise

Prices Bank Of Montreal-eps-surprise | Quote from Bank of Montreal

Zacks consensus estimate for fiscal second quarter results fell 1.2% over the past seven days to $2.46 per share, indicating a 1.2% drop from the number reported a year earlier. The consensus figure for sales of $5.20 billion reflects growth of 7.7%.

Before looking at the forecast from our quantitative model, let’s take a look at the factors that should have affected Bank of Montreal’s performance in the second quarter.

Factors influencing results

Net interest income (NII): Overall loan demand improved in the February-April quarter, mainly due to the improving economy. In addition, the Bank of Canada raised interest rates twice during the quarter. Thus, the rise in interest rates and the gradual increase in demand for loans should have supported the Bank of Montreal’s NII.

Investment Banking (IB) Fees: Unlike in recent quarters, deal-making came to a screeching halt in the second fiscal quarter as the ongoing Russian-Ukrainian conflict and raging inflation numbers weighed on corporate sentiment globally. Similarly, subsequent IPOs and equity offerings dried up as stock market performance turned disappointing.

On the other hand, bond issues were probably correct. As such, Bank of Montreal’s IB business performance is expected to have been subdued in the reporting quarter.

Commercial income: Due to ongoing macroeconomic and geopolitical issues, equity markets experienced a significant increase in volatility and increased client activity in the second quarter of the fiscal year. In addition, the performance of the fixed income securities markets remained satisfactory in a context of concerns related to inflation. As a result, Bank of Montreal’s equity and fixed income market earnings should have improved in the quarter ahead.

Provisions: With loan balances rising and expectations of an economic slowdown due to geopolitical and inflationary concerns, Bank of Montreal is expected to have built up reserves in the second quarter of the fiscal year.

What our model predicts

Our model does not predict an earnings beatdown for Bank of Montreal this time around. That’s because it doesn’t have the right combination of two key ingredients – a positive ESP Earnings and a Zacks Rank #3 (Hold) or better.

You can discover the best stocks to buy or sell before they’re flagged with our Income ESP Filter.

ESP Earnings: The ESP profit for Bank of Montreal is -1.60%.

Zack’s Ranking: The company currently has a No. 3 Zacks rank.

You can see the full list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Earnings Release Dates for Other Canadian Banks

Some of the other Canadian banks due to announce their quarterly figures are Canadian Imperial Bank of Commerce CM and The Toronto-Dominion Bank TD

CM and TD are due to announce their quarterly results on May 26.

Stay up to date with upcoming results announcements with the Zacks Earnings Schedule.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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