Sometimes this Bear of the Day is tough to write. You don’t want to sound like you’re being a total hater for no reason. Really it’s not meant to be a smear piece or anything like that. What we’re trying to do is warn you about estimate revisions to the downside that you may not have been aware of. Analysts follow these stocks all day every day and if they see the cracks in the ice early, it can save you from losing money.
Today’s Bear of the Day hits sort of close to home. Bank of Montreal (BMO) is the behemoth that took over Chicago’s Harris Bank. Harris was renown in the Chicagoland area for having a community bank feel with big bank resources. For a while, Harris was allowed to operate as it had prior to the merger. But as the financial crisis began to unfold, BMO slowly but surely choked it out. The bank boards were phased out, bank managers lost their discretionary powers then finally all those banks that used to be branded Harris are now BMO Harris.
Several mergers led to BMO expanding its footprint in the Midwest including nearly doubling the size of Harris through its M&I acquisition. Still, all the buying and merging has left BMO in the #2 spot in Chicago market share behind Chase (JPM). They do get some street cred for sponsoring the Bulls and the Blackhawks though. They’ve also taken over the arena the Milwaukee Bucks play in.
Once the dust settled on buying up competitors in Wisconsin, Illinois and Indiana, BMO has been left with the task of increasing margins and making money the old fashioned way. Unfortunately it looks like management has been unable to do so. Analyst have splashed some cold water on this one recently.
After BMO choked on earnings last quarter, missing the Zacks Consensus Estimate by 24 cents or 16.44% at $1.22, four analysts slashed their estimates for the current year and next year. The bearish action by the analysts took current year consensus down from $6.17 all the way to $5.36 and dropped next year’s numbers down from $6.76 to $5.71.
BMO sports a Zacks Growth Style score of “F” meaning if you’re looking for growth in earnings, you better look somewhere else. But this situation isn’t unique to BMO, as the foreign banking industry currently ranks in the bottom 20% of our Zacks Industry Rank.
It could be the lack of growth potential, the downward revisions, or the glaring ineptitude of the management that’s the stock taking a tumble. After rising to a fresh 52 week high over $76 in September, BMO stock tumbled all the way down below $58 shortly after the start of the year. The last gasp for air that has taken the stock to $65 looks to be a countertrend rally that is running out of steam. The Commodity Channel Index is heavily overbought at 160.25 offering a chance at short entry here.
If you’re looking for another foreign bank stock to invest in, Grupo Galicia (GGAL). GGAL is a Zacks Rank #1 (Strong Buy).
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