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On Friday, BMO Capital Markets adjusted its outlook on Royal Bank of Canada (RY:CN) (NYSE: RY), reducing the price target from Cdn$193.00 to Cdn$190.00, while reaffirming an Outperform rating for the bank’s shares. With a market capitalization of $165 billion and a P/E ratio of 13.95, InvestingPro analysis suggests the stock is currently undervalued relative to its Fair Value. The revision follows the bank’s first-quarter earnings for fiscal year 2025, which surpassed expectations with an operating earnings per share (EPS) of $3.62, beating the anticipated $3.20 by analysts and $3.23 by consensus by approximately 13% and 12%, respectively.
The earnings beat was primarily due to a standout performance in the Capital Markets division, which experienced a record trading quarter. Despite a miss in Commercial Banking due to higher provisions for credit losses (PCLs), other divisions including Personal Banking, Wealth Management, and Insurance exceeded expectations. The bank’s strong performance is reflected in its impressive 6.77% revenue growth over the last twelve months, according to InvestingPro data, which also highlights Royal Bank’s position as a prominent player in the Banks industry. Personal Banking benefited from improved net interest margins (NIM), Wealth Management saw better net sales, and Insurance also outperformed.
The bank demonstrated strong operating leverage, supported by revenue growth. The total PCL ratio stood at 42 basis points, compared to the 35 basis points BMO Capital had projected. This included a 3 basis point build in performing reserves. The return on equity (ROE) was approximately 17%, even with a Common Equity Tier 1 (CET1) ratio of 13.2% and a buyback of 1.9 million shares during the quarter. Notably, Royal Bank has maintained dividend payments for 53 consecutive years, currently offering a 3.59% yield, as reported by InvestingPro, which offers comprehensive analysis of over 1,400 stocks through its Pro Research Reports.
BMO Capital has adjusted its future EPS estimates for Royal Bank of Canada, raising the forecast for fiscal year 2025 to $13.45 from the previous $10.45. This increase is attributed to better pre-tax pre-provision (PTPP) profits, though tempered by higher PCLs. The estimate for fiscal year 2026 EPS has also been raised to $14.15 from $13.80.
The reduction in the price target to Cdn$190.00 reflects a lower target price-to-earnings (P/E) ratio of 13.4 times, which BMO Capital attributes to near-term credit trends and tariff uncertainty. Despite the lowered target, the firm maintains a positive outlook on the bank’s stock, as indicated by the Outperform rating. For investors seeking deeper insights, InvestingPro offers additional valuable metrics and 10 more ProTips about Royal Bank, including detailed analysis of its financial health and growth prospects.
In other recent news, Royal Bank of Canada (RBC) reported impressive financial results for the first quarter of 2025, surpassing market expectations with an adjusted diluted earnings per share of $3.62, compared to the forecasted $3.23. The bank achieved a record net income of $5.1 billion, marking a 29% increase year-over-year, with revenue reaching $16.74 billion, exceeding the forecast of $15.43 billion. RBC has increased its guidance for net interest income growth, reflecting strong financial performance and effective cost management. Despite these positive earnings, RBC’s stock price experienced a decline, suggesting investor concerns over broader market conditions.
In analyst-related news, RBC maintained its strong return on equity at 16.8%, indicating robust profitability. The bank’s Common Equity Tier One (CET1) ratio stood at 13.2%, highlighting its financial stability. RBC has also revised its net interest income growth guidance to high single to low double digits, indicating confidence in its ability to capitalize on favorable market conditions. Additionally, RBC is committed to achieving full cost synergies from the HSBC Canada acquisition by early 2026.
The bank also faced challenges, including potential tariff uncertainties and economic indicators suggesting moderating growth in Canada. RBC’s CEO, Dave MacKay, emphasized the bank’s commitment to client growth and stability amid market uncertainties, stating that volatility can help the business. Despite these challenges, RBC remains well-positioned to navigate the evolving operating environment and support its clients’ financial needs.
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