2023-08-30 16:34:30
Scotiabank reported third-quarter financial results that exceeded forecasts by analyst Gabriel Dechaine of National Bank Financial. (Photo: 123RF)
What to do with titles BMO, Gildan and Banque Scotia? Here are some recommendations from analysts likely to move prices soon. Note: the author may have a totally different opinion from that expressed.
BMO (BMO, $114.32): spending cuts prioritized
BMO’s adjusted net income in the third quarter of its fiscal 2023 includes a charge of $223 million (pretax) related to severance payments, which is higher than analyst Gabriel expected Dechaine of National Bank Financial.
“The company is talking regarding a 2.5% reduction in full-time equivalent positions, which implies a reduction of 1,500 positions. In addition, the bank recorded an impairment charge of $45 million related to the reduction of its real estate inventory for the current quarter,” says the analyst. According to him, these cost-cutting measures should save BMO $400 million annually once they are implemented.
The analyst believes that the motivation of BMO management behind these decisions, which might also include other announcements in the near future, is directly linked to the difficult economic environment which is affecting the bank’s revenues. “The decisions are also linked to the achievement of growth objectives following the acquisition of Bank of the West,” he says.
Gabriel Dechaine adds that BMO’s performance in the United States showed signs of weakness during the quarter, which raises questions regarding the company’s ability to achieve its growth targets on American soil.
“This segment reported earnings before tax and provisions for bad debts down 11% year-on-year including Bank of the West operations for both quarters. Expenses have increased mainly due to the severance payments discussed above,” he says.
The US business was impacted by the 16 basis point decline in profit margins and by loan and deposit volumes which were down 1% and 3% respectively compared to the prior quarter data.
The analyst expects that the improvement in performance will also come from the synergies put in place following the acquisition, which he estimates might reach 670 million US dollars by the end of the first quarter of fiscal year 2024.
It reiterates its “sector-matched performance” recommendation for BMO stock, and its one-year target price drops from $122 to $123, valuing the stock at 9.5 times expected earnings per share in fiscal 2024 .
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