TD Newcrest analyst Jason Bilodeau chopped his target price on Royal Bank of Canada by $2, to $66, days after the bank missed expectations with it fiscal second quarter earnings. However, he maintained a "buy" recommendation on the stock (full disclosure: I own it).
"The second quarter was a bit of a backslide for Royal after an impressive start to the year in the first quarter," he said in a note. "Much of the weakness can be explained by Wholesale/Corporate, and although we did trim our numbers, we still expect better results in the second half of 2011 and decent growth in 2012."
He believes that the bank's U.S. and international operations, which produced a loss during the second quarter, should improve over the rest of the year and start contributing to earnings.
As well, while Royal Bank's wholesale operations missed expectations following a strong first quarter, Mr. Bilodeau still believes that it is capable of generating $400-million to $500-million in net income each quarter. He expects good performance in the second half of the year.
"With the pullback [on Friday] the return from current levels looks good (on the order of 19 per cent, including dividends) and we Reiterate our BUY rating," he said.
He joins other analysts who have taken a similar approach to the stock, maintaining their recommendations but trimming their target prices. For example, Kevin Choquette at Scotia Capital held his "sector outperform" recommendation but cut his target price to $70 from $75. Robert Sedran at CIBC World Markets cut his target price to $61 from $65. And John Reucassel at BMO Capital Markets trimmed his target to $63 from $65.