Want to own a bank but are still concerned about toxic assets and non-existent dividends? Look north of the border. Royal Bank of Canada (RY) recently reported record net income in the fiscal first quarter. This Zacks #1 Rank (strong buy) is trading at just 13.3x forward estimates.
Royal Bank of Canada, or “RBC”, is Canada’s largest bank as measured by assets and market capitalization.
It provides personal and commercial banking, wealth management services, insurance, capital markets and investment banking services to 18 million clients around the world. The company has offices in Canada, the U.S. and 56 other countries.
RBC Finally Beats the Zacks Consensus
On Mar 3, RBC reported fiscal first quarter 2011 results and beat the Zacks Consensus by 26%. Earnings per share were $1.27 compared to the consensus of just $1.01.
It was the first earnings surprise in 4 quarters. The company made just $1.00 a year ago.
Record Net Income
Net income soared 23% to a record $1.8 billion. The quarter was fueled by record results in Canadian Banking, Capital Markets and Wealth Management.
Net income in the Canadian Banking segment rose 14% to a record $882 million due to volume growth across all businesses and lower provision for credit losses.
Capital Markets also had record quarterly earnings as net income rose 7% to $613 million primarily due to strong growth in its origination business and stronger new issue activity and higher loan syndication fees.
Higher trading revenue and growth in investment banking in the U.S. and Canada added to the quarter.
Compared to the fiscal first quarter of 2010, return on common equity (ROE), a key banking fundamental, rose to 20.3% from 17.5%. A reading over 20% is considered excellent.
Tier 1 capital ratio was also at 13.2%.
Zacks Consensus Estimates Surge
Given the record results, analysts moved to revise their estimates higher.
8 estimates have moved higher in the past 30 days for fiscal 2011 as the Zacks Consensus jumped to $4.74 from $4.24 per share. That is earnings growth of 35.5%.
6 estimates have also moved higher for fiscal 2012 pushing the Zacks consensus up to $5.24 from $4.75. That is earnings growth of 10%.
Shareholders Rewarded for Patience
RBC also has an excellent track record of rewarding shareholders.
Unlike its American peers, some of which slashed their dividends to nearly zero during the financial crisis, RBC has paid out a steady dividend which currently yields a nice 3.3%.
While 3.3% is under Canadian peer Bank of Montreal (BMO) which is yielding 4.5%, it easily surpasses JPMorgan Chase (JPM) by 1.1% as JPM yields just 2.2% and Bank of America (BAC) yielding only 0.3%.
Shares At 5-Year Highs
Shares of RBC have regained 2007 highs and recently surpassed that level.
Still, RBC is a value stock. In addition to a P/E under 15, it has a price-to-book ratio of just 2.4.
The company is scheduled to report fiscal second-quarter results on May 26.
Tracey Ryniec is the Value Stock Strategist for Zacks.com. She is also the Editor in charge of the market-beating Zacks Value Trader service. You can follow her at twitter.com/traceyryniec.
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