Revised Targets Though he deemed its fourth-quarter earnings release “disappointing,” Scotia Capital analyst Meny Grauman remains “optimistic” about Royal Bank of Canada (
).
Before the bell on Wednesday, RBC reported adjusted earnings per share of $ 2.71, missing the Street’s estimate of $2.81 and “well below” the $3 projection from Mr. Grauman, who anticipated “a much larger” reversal in provisions for credit losses. He attributed the result, which was down 10 per cent from the third quarter and 19 per cent year-over-year, to “outsized” margin pressure in Canadian Banking and at City National.
“After a steady streak of earnings beats, RBC closed the year with a rare EPS miss driven by outsized margin pressure and elevated expenses that muted the impact of strong loan growth,” said Mr. Grauman. “The end result was a disappointing PTPP earnings result which was about 4 per cent below the Street, and which the bank’s CEO labeled as disappointing during the earnings call with analysts. This was not the best way to close the books on F2021, but the real question is how this disappointing result impacts our outlook for F2022 and beyond.
“The good news is that we believe Q4 was a misstep and not a sign of something more structural. In our view Royal Bank continues to have significant torque to the post-pandemic recovery including upside to rising rates especially in its US wealth business, and significant exposure to a bounce back in credit card activity and commercial loan growth. During the earnings call Management continued to highlight its constructive margin outlook that will only be further helped by rising rates, and its clear focus on delivering positive operating leverage despite the headwinds from rising inflation.”
Keeping a “sector outperform” rating for RBC shares, Mr. Grauman trimmed his target to $146 from $149. The average is $144.52.
Others making changes include:
* Barclays’ John Aiken to $141 from $138 with an “overweight” rating.
“We continue to like RY’s diversified operations and believe that it supports a premium valuation, given an ongoing positive outlook. Admittedly, the quarter was not as robust as we would have liked but this appears to be a sectorwide, rather than stock-specific, phenomenon this quarter. We are modestly lowering our target price ... given a little greater uncertainty on the nearterm growth outlook,” he said.
* CIBC World Markets’ Paul Holden to $149 from $143 with a “neutral” rating.
* Canaccord Genuity’s Scott Chan to $141 from $143 with a “buy” rating.
* TD Securities’ Mario Mendonca to $150 from $155 with a “buy” rating.
* National Bank Financial’s Gabriel Dechaine to $140 from $144 with an “outperform” rating.
Meanwhile, Veritas Research analyst Nigel D’Souza raised the stock to “buy” from “reduce” with a $147 target.