Analysts have been busy lowering their performance expectations for Royal Bank of Canada after yet another disappointing earnings report on Friday. That said, most still expect some healthy share price gains over the coming year even as investors grow increasingly impatient with the stock.
Canada's largest bank made $1.12-billion in the fourth quarter, down 9 per cent from a year ago and significantly missing Street expectations, largely due to higher costs, poor results from U.S. operations, and a loss associated with the sale of its Liberty Life division.
This renewed weakness in international operations "again aggravated concerns about the true earnings power of the platform," commented Jason Bilodeau, analyst with TD Newcrest. "We do see upside in the stock post the selloff, but we expect investor concerns to linger in the immediate term."
One bright spot, said Mr. Bilodeau, is management saying it is looking for a positive contribution from the struggling U.S. and international operations at some point in fiscal 2011. That's earlier than Mr. Bilodeau expected, and he believes it could translate into a $200-million boost to quarterly earnings, or almost 15 cents in earnings per share.
Mr. Bilodeau cut his 12-month target price by $2 to $61 but reiterated his "buy" rating.
Feeling a little less bullish is Robert Sedran, analyst with CIBC World Markets Inc., who cut his price target by $3 to $57 and rates the stock as a "sector performer." While interest income and revenues from capital markets and trading was generally quite good, "it is our opinion that a positive view here requires better visibility into the bank's earnings power than we now have," Mr. Sedran said.
Desjardins Securities analyst Michael Goldberg contended that the results were not as bad as they appeared to be on the surface. "We like banks with strong, growable franchises - this is certainly true of Royal. At the same time, as it organically grows Canadian banking and builds out its wealth and more stable capital markets businesses, it must fix its U.S. banking segment and adapt to less favourable conditions in capital markets trading," he said. Mr. Goldberg slightly hiked his target price, by $1 to $58, and maintained his "buy-average risk" rating.
That's just slightly higher than the consensus mean estimate of $57, based on 16 analysts who cover the stock, according to Capital IQ.
Research In Motion Ltd. appears poised to launch its new Playbook tablet as previously scheduled in the first quarter of 2011, despite industry skepticism it won't have all the bugs fixed by that time frame, said TD Newcrest analyst Chris Umiastowski. Playbook may be perceived as a 'late' relative to the iPad, but this is still the first inning of global consumer adoption of a new technology, he said.
Upside: Mr. Umiastowski reiterated his $90 (U.S.) 12-month target price.
Pan American Silver Corp. has released a preliminary assessment of its Navidad project in Argentina that suggests a large, robust silver project that could almost double the company's production, said TD Newcrest analyst Daniel Earle. A full feasibility study is scheduled to be completed at the end of the second quarter of 2011.
Upside: Mr. Earle hiked his 12-month target price by $5 (U.S.) to $46.
Detour Gold Corp. should have the funds necessary to develop its gold project in northeastern Ontario now that it has completed a $500-million debt facility, said UBS analyst Dan Rollins. It has already reached agreement with key local stakeholders and early development work is now underway, he noted
Upside: Mr. Rollins hiked his 12-month price target by $1.50 to $40.
Vector Aerospace Corp. has set up a special committee to review strategic alternatives, including the potential sale of the company. TD Newcrest analyst Tim James said Vector is an attractive acquisition target and believes it could go for $10 to $12 per share given its strong track record, new growth opportunities, and exposure to global use of military helicopters.
Upside: Mr. James maintained his "buy" recommendation and $10.50 target price.
Darcy Keith