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After a strong three year run in which Bank of Montreal has delivered a total return of 143.8%, the stock now looks closer to fully priced on most valuation checks, even though the core intrinsic value estimate using the Excess Returns model still points to only modest upside or downside around current levels.
Over the past three years, Bank of Montreal has returned 143.8%, which puts extra focus on whether current expectations are already well embedded in the share price.
The agreed sale of Moneris and participation in a planned tokenized deposit network can support views of healthy future cash generation, while rising Canadian consumer insolvencies highlight credit quality as a key risk for how much investors are willing to pay for the stock.
With a value score of 2 out of 6, Bank of Montreal does not screen as a clear bargain on the broader set of valuation checks.
The issue now is whether Bank of Montreal's recent gains leave enough valuation support for new investors at around the current price.
Bank of Montreal delivered 56.5% returns over the last year. See how this stacks up to the rest of the Banks industry.
The Excess Returns model evaluates how effectively Bank of Montreal converts its equity base into earnings above the required return for shareholders. It then capitalizes those surplus returns into an intrinsic value per share.
For Bank of Montreal, the model uses a book value of CA$119.96 per share and a stable EPS estimate of CA$16.17 per share, based on forecasts from 11 analysts. With an average return on equity of 13.54% and a cost of equity of CA$9.36 per share, the bank is assumed to generate excess returns of CA$6.81 per share on a stable book value of CA$119.48 per share. That set of inputs produces an intrinsic value estimate of about CA$262.66 per share, which implies the stock is roughly 8.5% below this model value.
The agreed sale of Moneris for about CA$2b and the expected gain for Bank of Montreal help explain why the market is willing to pay close to the Excess Returns estimate rather than a deep discount. Overall, the current share price sits near the range that the model suggests is reasonable.
On this Excess Returns view, Bank of Montreal stock currently appears to be roughly fairly valued.
Bank of Montreal is fairly valued according to our Excess Returns, but this can change at a moment's notice. Track the value in your watchlist or portfolio and be alerted on when to act.
Head to the Valuation section of our Company Report for more details on how we arrive at this Fair Value for Bank of Montreal.
P/E is a useful yardstick for Bank of Montreal because earnings remain a primary driver of how investors assess large, established banks. Bank of Montreal currently trades on a P/E of about 18.1x, compared with an industry average of 11.4x for banks and a peer group average of 17.3x. That places the stock at a premium to the wider sector and only slightly above closer peers.
The Fair P/E Ratio model, which looks at factors such as the bank's earnings profile, size and risk, points to a level of about 18.7x as a reasonable anchor. Bank of Montreal's current multiple sits just below that fair ratio, so the stock does not screen as obviously cheap or stretched on this measure.
On the P/E multiple, Bank of Montreal stock looks roughly fairly valued relative to what the model suggests is appropriate.
See what the numbers say about this price — find out in our valuation breakdown.
Simply Wall St Narratives for Bank of Montreal pick up where the valuation checks leave off and spell out the specific futures for growth, margins and earnings that would need to play out for the stock to be worth meaningfully more or less than today. Instead of giving just one output from a ratio or model, they set out the underlying assumptions so you can monitor whether Bank of Montreal's actual progress keeps matching that story.
Share a Narrative on Bank of Montreal that puts real numbers around your view, for example whether the Moneris sale and the planned tokenized deposit network add up to enough to support today's price. Add your voice to the Simply Wall St community and track how your thesis holds up as new results and news arrive.
Do you think there's more to the story for Bank of Montreal? Head over to our Community to see what others are saying!
Bank of Montreal now looks roughly fairly valued on both the Excess Returns intrinsic value estimate and its P/E multiple, which are each close to where the stock trades today. The stronger signal from the intrinsic value work is tempered by weaker scores on the broader valuation checks, so the stock does not screen as a clear bargain. From here, the key question is whether Bank of Montreal can keep earnings and asset quality solid enough for investors to stay comfortable paying a near peer level multiple without a larger valuation cushion.
This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
Companies discussed in this article include BMO.TO.
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