Royal Bank of Canada (RY) is taking advantage of market conditions to capitalize on its trading platform and expand its banking operations. It easily surprised on estimates in the third quarter by 25.61% as trading revenue soared 91.8%. Despite trading near 52-week highs, the company has a forward P/E of just 13.9.
Company Description
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 and 54 other countries.
RBC Reported Record Third Quarter Results
Not all banks are struggling. RBC reported record third quarter results on Aug 27 with net income jumping 24% to $1.561 billion from $1.262 billion in the year ago quarter. The company surprised by 21 cents as earnings per share were $1.03 compared to the Zacks Consensus Estimate of 82 cents.
The Capital Markets segment propelled results in the quarter, as net income soared 91.8% to $562 million from $293 million due to an increase of trading revenue in the U.K., the U.S., and Canadian fixed income and money markets, and U.S. based equity businesses.
Canadian banking volumes grew by 11% over the year ago period even as net income was down $40 million due to higher provisions for credit losses and spread compression due to much lower interest rates compared to a year ago.
Wealth Management saw net income fall $18 million to $168 million primarily due to the decline in the world’s stock markets. But quarter over quarter net income rose $42 million as there were higher transaction volumes. The company added over 100 advisors to its roster worldwide.
2009 Zacks Consensus Estimate Rises
Given the big beat in the third quarter, analysts are bullish on the remainder of the year.
The fourth quarter Zacks Consensus Estimate has been holding at 96 cents for the last 90 days.
However, the 2009 Zacks Consensus Estimate spiked 12.6% to $3.75 per share in the last 30 days as 2 out of the 4 covering analysts raised in that time.
Value Fundamentals
Royal Bank of Canada is a Zacks #1 Rank (strong buy) stock. It has a price-to-book ratio of 2.57. The company has an outstanding track record on return on equity (ROE), averaging 21.05% over the last 5 years.
Additionally, RBC pays a healthy dividend, with a current yield of 3.50%.
