Earnings estimates for Bank of Montreal ( BMO - Snapshot Report ) have been moving higher since this major Canadian bank posted strong third quarter fiscal 2012 results, which included year-over-year earnings growth of 9%. Moreover, Bank of Montreal has delivered positive earnings surprises in three of the last four quarters with an average beat of 3%.

This Zacks #2 Rank (Buy) company currently pays a dividend that yields a solid 4.8%.

Third Quarter EPS Moves Higher

On August 28, Bank of Montreal reported third quarter fiscal 2012 adjusted earnings per share of $1.50, topping the Zacks Consensus Estimate of $1.40 by 7% and the year-ago earnings of $1.38 by 9%. The upsurge was mainly aided by growth in revenue and a lower provision for credit losses.

Net interest income climbed 17% to $2.05 billion (C$2.01 billion). Non-interest income was up 13% to $1.70 billion (C$1.67 billion). However, the net interest margin contracted 8 basis points (bps) to 1.70%. Additionally, the company's non-interest expenses rose 20% to $2.38 billion (C$2.34 billion) over the same period.

The provision for credit losses continued to improve at Bank of Montreal, coming in at $118 million (C$116 million) in the quarter, down 50% from the year-ago quarter.

Rising Earnings Estimate Revisions

The past 7 days have witnessed an escalation in all seven estimates for fiscal 2012, pushing the Zacks Consensus Estimate up by 3% to $5.76. For 2013, 6 out of 9 estimates moved north over the same time frame, helping the Zacks Consensus Estimate advance 2% to $6.07.

The Zacks Consensus Estimate for 2012 reflects a year-over-year improvement of about 11%, while the Zacks Consensus Estimate for 2013 indicates year-over-year growth of 5%.

Dividend Payment

Bank of Montreal is one of the few banks that maintained regular dividend payments throughout the financial crisis. The company also increased its quarterly dividend from 69.5 cents per share to 73 cents in August 2012. Currently, the company pays a quarterly dividend of 73 cents per share, equating to a yield of 4.8%.

Reasonable Valuation

The shares of Bank of Montreal currently trades at 10.2x 12-month forward earnings, a slight premium to the peer group average of 10.1x. Its price to book ratio of 1.4 is in line with the industry median. Moreover, the company has a trailing 12-month ROE of 14.1%, in line with the peer group average.

The Bottom Line

Bank of Montreal is one of few commercial banks with rising estimates, strong growth projections, a strong dividend yield and reasonable valuation. Moreover, with dividend increases and improving credit quality, it offers attractive upside potential.

Company Description

Headquartered in Montreal, Canada, Bank of Montreal provides various banking products and services. The company was founded in 1817 and conducts business through 1,600 banking offices in Canada and the United States. It has a market capital of $38 billion.