Bank of Montreal (BMO) is on the "right track" to rebuilding its return on equity, RBC Capital Markets said in a note Wednesday, adding they believe the lender has a "solid capital position."

RBC said it expects a steady decline in the lender's impaired provision for credit losses, projecting the ratio at 0.46% in 2025, 0.41% in 2026, and returning to levels of 30 basis points by 2027, with US impaired provisions viewed as having already peaked.

The company reiterated its plan to lift return on equity to 15% over the medium term, compared with 9.8% in 2024, driven by US expansion, PCL normalization, improved operating leverage, and more efficient capital use, the report said.

The firm maintained its outperform rating on the stock and raised its price target to CA$168 ($121.8) from CA$161.

Price: 119.67, Change: +0.28, Percent Change: +0.23