Barlow’s research roundup: BMO analyst’s top picks in bank stocks as earnings reports approach

Daily roundup of research and analysis from The Globe and Mail’s market strategist Scott Barlow

Bank earnings ahead

BMO bank analyst Sohrab Movahedi provided a quick preview for bank stocks ahead of sector earnings reports,

“Q1 earnings kicks off February 24th with BNS, and it is unlikely to be a major inflection point. We expect last year’s earnings drivers of NIM [net interest margin] expansion and fee-revenue growth (benefits of an upward sloping yield curve), and positive operating leverage (with focus on efficiency) to offset muted loan growth and still-elevated PCLs to endure. This, and continued buybacks, should yield year-over-year cash operating EPS growth of 8 per cent (higher at BNS, TD, and CM; lower at RY and NA). While the current forward P/E valuation multiple of 12.8x on the bank index has pierced the upper end of its typical historical range, the prospects of above medium-term target EPS growth and continued ROE improvements keep us constructive on the banks; downside risk remains a Canadian economic recession and continued sluggish loan growth environment from unresolved trade uncertainty. Our Outperform-rated names remain RY, TD, NA, CM, and EQB”

Telus leadership change

RBC Capital Markets analyst Drew McReynolds is not concerned about the surprise CEO change at Telus Corp.,

“TELUS maintains a premium valuation relative to large cap peers suggesting a higher performance bar must be met in what remains a low revenue growth environment. While this premium valuation comes with a degree of valuation risk, we believe TELUS as the structural leader within the group can maintain a premium valuation provided that certain boxes continue to be ticked through 2026-2028, including: (i) sustaining 3 per cent or higher adjusted EBITDA growth systematically realizing cost efficiencies; (ii) continuing to make progress towards management’s 10-per-cent consolidated capex intensity objective; (iii) delivering on its newly-provided 2026-2028 FCF CAGR outlook of a minimum of 10 per cent; (iv) turning the discounted DRIP off by the end of 2027; (v) reducing leverage to 3 times by 2027 while pausing on major M&A … The Board announced that CEO Darren Entwistle will retire on June 30th 2026 with Victor Dodig (who has served on the TELUS Board since 2022 and previously served as the CEO of CIBC from 2014 to 2025) joining the TELUS leadership on May 1st and becoming CEO effective July 1st. While an eventual CEO transition within the medium-term was anticipated, we were surprised by the earlier-than-expected timing of this transition but fully expect the torch to be successfully passed without material change”

2026 investment themes

BofA Securities published a report updating clients on the top investing themes for 2026. The most interesting for me were …,

“After more than doubling, manufacturing construction spend (i.e., walls & roofs) has leveled off. However, spending on equipment continues to rise. [analyst Andrew Obin] sees pharma as the next wave of reshoring ($470-billion of announced capex plans), while semi fab spending is less than halfway complete ($230-billion still being built). Data center and electrical grid capex spending are growing as well. Deregulation & policy tailwinds: Andrew Obin views deregulation as beneficial to U.S. manufacturers’ margins and capital spending. The Trump Administration has acted to expedite permitting for power generation and manufacturing sites. Accelerated depreciation is a tailwind to capex. The past two periods of accelerated depreciation raised capital spending by 10 per cent and 17 per cent … History supports the idea that US manufacturing PMIs returning above 50 is a buy signal. We assume investors buy long-lived multi-industrial stocks on the month that the US manufacturing PMI returns above 50 (e.g., not the month before). We use a simple average of the share prices of ETN, EMR, GE, HON, PH, and MMM. On average, multi-industrials outperform the S&P 500 by 9 per cent in the one year after PMIs return above 50 (hit rate: 5 of 7 times, range: negative 7 per cent to up 24 per cent). On average, multi-industrial stocks rise 21 per cent on an absolute basis in the one year after PMIs return above 50 … Beauty remains a highly attractive market at the intersection of staples & discretionary. Revenue growth is set to accelerate in 2026 (we forecast 4.9 per cent, 2 times the growth of 2025), thanks primarily to an improvement in the China ecosystem and tailwinds in the US … Luxe to see biggest improvement, helping skincare: for 2026 we are most bullish on the luxe segment, which will benefit from China/travel retail recovery, sizable fragrance launches and shelf expansion in skincare. We are less optimistic on mass given a K-shaped economy, lower price tailwinds, competition & lack of EM acceleration … Estee Lauder and L’Oréal are likely to be the two biggest beneficiaries. Shiseido is highly leveraged to a China recovery, but the recent China-Japan tension may resulted in a more muted consumer response”

Bluesky post of the day

Diversion

“Saturn’s Rings Came From a Two-Moon Collision About 100 Million Years Ago, Study Says” - Gizmodo