Earnings estimates for
Royal Bank of Canada
(
RY
) have been moving higher since this major Canadian bank posted
strong fiscal third quarter 2012 results late last month, which
included an earnings surprise of 12.0%. Moreover, this Zacks #2
Rank (Buy) has delivered positive earnings surprises in three of
the last four quarters with an average beat of 5.1%.
In addition, RY currently pays a dividend that yields a solid 4.0%.
Third Quarter EPS Moves Higher
On August 30, Royal Bank of Canada reported fiscal third quarter
2012 adjusted earnings per share of $1.31, topping the Zacks
Consensus Estimate of $1.17. The performance was helped by growth
in revenue and improving credit quality.
Net interest income climbed 8.3% to $3.23 billion (C$3.29 billion).
Non-interest income was up 6.0% to $4.39 billion (C$4.47 billion).
Moreover, the net interest margin expanded 6 basis points (bps) to
1.61%, but the company's non-interest expenses rose 4.8% to $3.70
billion (C$3.76 billion).
The provision for credit losses as a percentage of net loans and
acceptances decreased at Royal Bank of Canada, coming in at 0.34%,
down 3 basis points on a year-over-year basis. Moreover, allowance
for credit losses as a percentage of total loans and acceptances
declined 7 basis points to 0.53%.
Rising Earnings Estimates
The past 30 days have seen four of five estimates for fiscal 2012
move higher, raising the Zacks Consensus Estimate by 5.1% to $4.96.
For 2013, five of six estimates headed north, helping the Zacks
Consensus Estimate advance 3.1% to $5.29.
The Zacks Consensus Estimates reflect year-over-year improvements
of about 13.5% for 2012 and 6.7% for 2013.
Dividend Payment
Royal Bank of Canada is one of the few banks that have maintained
regular dividend payments throughout the financial crisis. The
company also enhanced its quarterly dividend from 57 cents per
share to 60 cents in August 2012. The current dividend of 60 cents
per share equates to a yield of 4.0%.
Premium Valuation
Shares of Royal Bank of Canada currently trade at 11.6x 12-month
forward earnings, a 21% premium to the peer group average of 9.6x.
Its price to book ratio of 2.1 is at a significant premium compared
with the industry median of 0.6. The company has a trailing
12-month ROE of 18.6%, above the peer group average of 7.1%.
Chart Shows Strength
The stock has been consistently trading above its 200 days moving
average since August 2012. The widening gap between the stock price
line and that of 200-days moving average is significant.
Royal Bank of Canada is one of the few foreign banks with rising
estimates, strong growth projections, a sturdy dividend yield and
reasonable valuation. Moreover, with dividend increases and
improving credit quality, it offers attractive upside potential.
Headquartered in Toronto, Canada, Royal Bank of Canada provides
various banking products and services under the RBC name worldwide.
The company was founded in 1864 and conducts business for personal,
business, public sector and institutional clients through its
offices in Canada, the U.S. and 51 other countries. It has a market
capital of $82 billion.
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