Analysts at RBC Capital Markets have dialled back their price targets for the major Canadian banks, noting strong fundamentals but with valuations that “may have gone a little too far.”
Analyst Darko Mihelic says the firm is cutting its target multiple from 15.0x to 14.0x after reviewing past instances of peak valuations.
That effectively means RBC is lowering how much investors should be willing to pay for each dollar of bank earnings, while still expecting growth in those earnings. As a result, price targets for the five banks under coverage have dropped by an average of 6.88 per cent, though Mihelic emphasizes the overall view remains positive.
“We still see potential upside (but more modest upside) to current stock prices,” he noted.
The Bank of Nova Scotia’s (BNS.TO, BNS) target is being cut the most, from $106 to $98, down 7.55 per cent. Bank of Montreal (BMO.TO, BMO) saw the smallest change, down 6.39 per cent from $219 to $205.
The more cautious stance comes despite improving underlying performance. RBC expects stronger return on equity and double-digit earnings growth across the group in 2026 and 2027, with relatively stable credit losses supporting the outlook.
Mihelic points out that the Canadian bank index’s current valuation of 13.0x forward earnings is above the historical average of 10.8x and not far off the historical peak of 14.6x hit in April 1998.
“Peak valuations in past periods were not sustainable and were followed by declines,” Mihelic said — adding that the 2003–2006 period might be most comparable, with similar high valuations and strong fundamentals. The 2006 valuation peak was 14.0x, Mihelic says, rising from a 2003 valuation of 11.7x.
Bank valuations have been climbing since 2023, the analyst says, and hit a recent high of 13.8x in February.
“We have seen 14x forward P/E multiples in the past and we believe our covered large Canadian banks are targeting (and in most cases likely to achieve) ROE [return on equity] and EPS [earnings per share] growth metrics that will mimic the 2003 to 2006 exit level,” Mihelic wrote. “Unless banks can materially increase core ROE and core EPS growth targets (without increasing risk), we think a 14x multiple is fair.”
He says the firm’s estimates already factor in several downside risks, including uncertainty around trade policy, geopolitical tensions, interest rates and credit quality, as well as the potential for broader economic weakness to weigh on capital markets and wealth businesses. Mihelic also points to private credit as a less visible risk that could emerge outside those assumptions.