BMO Stock Report

2-Year Price History

Ockham’s Rating

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BMO Revenue

As a value investing shop, we are interested in seeing how BMO’s revenues measure up against past performances. One easily understandable way of doing that is to compare Price to Sales per share levels over a given time frame. Assuming it is available, Ockham prefers to look at ten years of history (for this stock there are 10 years of history available) and we weigh recent years more heavily. This allows us to find weighted average historical high and low Price to Sales ratios, which give us a better idea of the stock’s current underlying value. Using this method, we have established a high range for Price to Sales of 1.84x and the low end of the range at 1.27x.

With respect to these historically rational metrics, notice that the current Price to Sales per share ratio for BMO of 1.91x is well above its historical average. This means that BMO looks relatively expensive compared to its historical Price to Sales average, and thus it is more difficult to believe that there is significant price appreciation potential. In order for the stock to become more attractive, we would like to see a decline in the Price to Sales ratio of 23% just to return BMO to its historical average.

BMO Cash Earnings

Looking at BMO specifically in their Cash Earnings capabilities, Ockham views BMO as above its historical average multiple of Cash Earnings. Looking at the last 10 years we can get a good understanding of what investors have grown to expect from BMO. For example, BMO’s Cash Earnings ratio per share has fluctuated between 10.27 and 15.31 over this historical timeframe. This range is based upon a proprietary weighted methodology at Ockham, but can clearly show an investor where BMO is with respect to prior business periods.

So when we look at BMO, what does this slightly higher than historical level of Price to Cash Earnings mean? From the Ockham perspective, it basically represents that the market has a higher stock price attributed to this level of Cash Earnings than compared to normal. So while we view this as a negative from a valuation perspective, it certainly doesn’t mean that BMO couldn’t rapidly improve in its value from other factors or a decline in stock price. The current Price to Cash Earnings level of 13.32 is 4% above the historical norm as calculated at Ockham. So a decline in stock price, or more hopefully, an increase in BMO’s Cash Earnings levels would improve our outlook for the stock.

BMO Dividends

When determining a company’s future prospects for success, Ockham Research sees analysis of dividend payments as a key additional factor. Even though it isn’t imperative for BMO to shell out a dividend in order to receive a positive rating, it can be helpful to further our analysis.

The estimated annual dividend for BMO is $2.33 producing a current dividend yield of 5.48%. Much like our evaluation of Sales and Cash Earnings per share, we review dividend yields from BMO against the historic high and low levels over all available dividend history. Because dividends are a decision made exclusively by management, we view a healthy and rising dividend as a sign of confidence and strength. The highest dividend yield from BMO over previous years was 12.06% while the lowest dividend yield was 2.29%. While it is quite common for a growth stock to pay no dividend at all, but for a mature company such as BMO that has a history of paying dividends it is disappointing to see their dividend yield drop so significantly. At this time, the current dividend yield is 23.62% below the median yield.