BMO analyst recaps bank earnings, reiterates top picks

BMO Capital Markets analyst Sohrab Movahedi recapped results for the major banks and reiterated top picks,

“Q4 earnings for the “Big 6” wrapped up on December 5 with NA, RY, and CM exceeding consensus expectations , while BNS, TD, and unrated BMO fell shy. Cash operating net income to common shareholders across the “Big 6” was $13.4 billion in Q4/24, up ~4% from a year ago. Overall, we are cautiously optimistic heading into 2025, with moderation in credit costs , an anticipated rebound in markets-related businesses, and strong capital positions .

“Central bank tightening over 2022/2023 brought cash yield in excess of most leading dividend strategies, severely diminishing investor interest for these companies. Tech leadership did not help. Case in point this November, one of the top non-payers, SHOP, gained 49% while one of the top dividend payers, BCE, tumbled 16%. With the pivot towards easing, the BoC is likely to go for deeper rate cuts than in the US, which should bring back investor preferences from cash back to income strategies .

The updated list of yield stocks is Endeavour Mining PLC, Toronto-Dominion Bank, Quebecor, Magna, Bank of Nova Scotia, Whitecap Resources, Power, Atco, iA Financial Corp, Great-West Lifeco, Premium Brands Holding, CCL Industries, Empire, Canadian National Railway, BCE, Imperial Oil, CIBC, Gildan Activewear, Parkland, Metro, Suncor Energy, Canadian Tire, Open Text, Canadian Natural Resources, Canadian Utilities, Allied Properties REIT, Fortis, Hydro One, Emera and TC Energy.

“For USD bears, in G10, the USD is most likely to see short-term weakness versus CAD and CHF, in our view. We expect 25 bp rate cut decisions for both the BoC and SNB this week. The market is pricing close to a 50bp BoC rate cut and 50% likelihood of a 50bp SNB rate cut as well. In the case of USDCAD, the spot price likely overshot last Friday, as the market overreacted to the rise of the Canada unemployment rate. We interpreted the labor report as more mixed than outright bearish for CAD.

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