Investment bank Jefferies has kept its “hold” ratings on two of Canada’s biggest lenders, Bank of Montreal (BMO) and Scotiabank, even after both posted quarterly results that beat analyst expectations. The firm’s message: the stocks already look fairly valued, so there’s little room for further gains in the near term.
What the numbers show
For BMO, Jefferies set a price target of C$225, which is below Monday’s closing price of C$238.63. That gap suggests the shares have already moved ahead of where the analyst firm thinks they should be trading. The bank reported adjusted earnings of C$3.96 per share, beating the C$3.77 that analysts had expected.
Scotiabank also beat earnings expectations, helped by strength in its capital markets business. But Jefferies’ decision to keep a hold rating on both banks indicates that the positive news is already baked into the current share prices.
Why the cautious tone?
Jefferies’ analysis of BMO’s quarter highlighted that the bank’s US retail operations did much of the heavy lifting, rather than more market-sensitive businesses like wealth management and capital markets. That mix matters because retail banking tends to be more stable but also less likely to surprise to the upside when markets are volatile.
For Scotiabank, the boost from capital markets—the division that handles trading, underwriting, and advisory work—was a key driver. But such gains can be lumpy, and Jefferies may be wary of assuming they will continue at the same pace.
What it means for investors
For everyday investors, a “hold” rating is a signal that the stock is expected to perform roughly in line with the broader market, not necessarily that it’s a bad investment. It suggests that the recent earnings beats are already reflected in the share price, and that further upside may be limited unless something changes.
That doesn’t mean the banks are in trouble. Both BMO and Scotiabank are large, diversified lenders with solid franchises. But if you’re looking for stocks that could deliver outsized gains, these may not be the ones to watch right now.
It’s also worth remembering that analyst price targets are just one opinion. They can be wrong, and they often lag behind the market’s own moves. Still, when a respected firm like Jefferies says a stock is fairly valued, it’s a sign that the easy money may have already been made.
Broader context
Canadian banks have been under pressure from higher interest rates, which can squeeze borrowing demand and increase provisions for bad loans. But they’ve also benefited from higher net interest margins—the difference between what they pay on deposits and what they earn on loans. The recent earnings season has shown that the big banks are navigating this environment reasonably well, though growth is uneven across divisions.
BMO’s reliance on its US retail bank is a reminder that the bank has a significant presence south of the border, which can be a double-edged sword. A strong US economy helps, but so does a weak Canadian dollar, which boosts the value of US earnings when converted back to Canadian dollars.
Scotiabank, meanwhile, has been focusing on its capital markets and wealth businesses to diversify away from its traditional Latin American retail operations, which have faced economic and political challenges.
What to watch next
Investors will be keeping an eye on whether these banks can sustain their earnings momentum. For BMO, that means watching US retail loan growth and credit quality. For Scotiabank, it’s about whether capital markets activity remains strong, especially if deal-making picks up.
Also worth noting: Jefferies’ price target for BMO is below the current price, which could be a warning that the stock is overbought in the short term. But it’s not a sell rating, so the firm isn’t predicting a big drop either.
As always, it’s wise to look at a range of opinions and consider your own financial situation before making any investment decisions. A hold rating is a neutral signal, not a recommendation to buy or sell.
The bottom line
Jefferies sees solid quarters from BMO and Scotiabank, but it doesn’t see much upside from here. For investors, that’s a sign to temper expectations for these stocks, even if the underlying businesses are performing well.
If you’re looking for growth, you might find more opportunities elsewhere. But if you’re after stability and dividends, these banks could still have a place in a diversified portfolio.
