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analysis

On today’s TSX Breakouts report, there are 81 stocks on the positive breakouts list (stocks with positive price momentum), and 18 securities are on the negative breakouts list (stocks with negative price momentum).

Many bank stocks have seen their share prices charge higher ahead of the earnings parade with Canadian banks set to report their fourth-quarter financial results in a couple of weeks. Currently, four of the ‘Big 6′ bank stocks are on the positive breakouts list with shares of Canadian Imperial Bank of Commerce (CM-T) and Royal Bank of Canada (RY-T) being the two exceptions.

RBC, one of these absent bank stocks that may soon surface on the positive breakouts list, is the focus today.

A brief outline on the stock is provided below that may serve as a springboard for further fundamental research when conducting your own due diligence.

The company

Royal Bank is a diversified financial services company, offering services such as personal and commercial banking, wealth management, insurance, and capital markets operations.

In terms of its income composition, last quarter, its Personal & Commercial Banking segment reported net income of $2.113-billion. Its Capital Markets segment delivered net income of $1.129-billion. Wealth Management reported net income of $738-million. Insurance came in at $234-million, and the Investor & Treasury Services segment delivered net income of $88-million.

Investment Thesis

  • Market leadership.
  • Strong capital position.
  • Diversified portfolio.
  • Rising interest rates providing a tailwind.
  • Valuation: In-line with historical average.
  • Potential catalysts: Dividend hikes and share buybacks.

Quarterly earnings

Before the market opened on Aug. 25, the company reported solid third-quarter fiscal 2021 financial results that came in ahead of the Street’s expectations.

The company reported earnings per share of $2.97, exceeding the consensus estimate of $2.72. The CET1 (Common Equity Tier 1) ratio climbed to to 13.6 per cent, up 1.6 per cent year-over-year. Return on equity was 19.6 per cent. The share price advanced 0.8 per cent that day.

At Barclay’s Virtual Global Financial Services Conference held on Sept. 15, Royal Bank’s chief financial officer Rod Bolger provided a bullish growth outlook for the company, “We’re well positioned for future growth across the board. If you look at our core businesses, whether it be the Capital Markets business I mentioned, our Canadian Banking franchise, our Wealth Management franchises, both in the U.S. and in Canada, our City National Bank, all of those have strong market share and growing market share. Our asset generation is high. We’re poised for growth. And the diversified business model means in tougher times, we can offset it, if there [are] headwinds, and we have lower volatility in terms of earnings growth than our peers. And in good times, given our market share, that diversified business model is going to help us maintain higher than market growth.”

The company will be reporting its fourth-quarter fiscal 2021 financial results before the market opens on Dec. 1. The Street is anticipating the company will report earnings per share of $2.79.

The stock is dual-listed trading on the Toronto Stock Exchange and the New York Stock Exchange under the same ticker, RY.

Dividend policy

The company pays its shareholders a quarterly dividend of $1.08 per share or $4.32 per share on a yearly basis. This equates to an annualized yield of 3.2 per cent.

Last quarter, the payout ratio stood at 36 per cent. Management targets a payout ratio of between 40 per cent and 50 per cent.

At the beginning of the month, the Office of the Superintendent of Financial Institutions (OSFI) removed restrictions on dividend hikes and share buybacks. As a result, a material dividend increase is anticipated to be announced by management, which would lift its payout ratio back to its historical levels.

Analysts’ recommendations

The company is actively covered by 14 analysts, of which 10 analysts have buy recommendations, three analysts have neutral recommendations, and one analyst has a “reduce” recommendation (from Veritas’ Nigel D’Souza).

Revised recommendations

Month-to-date, two analysts have revised their expectations.

  • Desjardins’ Doug Young bumped his target price to $143 from $141.
  • Veritas’ Nigel D’Souza raised his target price to $144 from $137 but maintained his “reduce” recommendation.

Financial forecasts

The consensus earnings per share estimates are $11.28 for fiscal 2021 and $11.14 for fiscal 2022.

Earnings estimates have been rising. For instance, three months ago, the consensus earnings per share estimates were $10.86 for fiscal 2021 and $10.87 for fiscal 2022.

According to Bloomberg, the consensus earnings per share estimates for its industry peers are as follows:

  • Bank of Montreal (BMO-T): $12.72 in fiscal 2021 and $12.44 in fiscal 2022.
  • Bank of Nova Scotia (BNS-T): $7.71 in fiscal 2021 and $7.88 in fiscal 2022.
  • Canadian Imperial Bank of Commerce (CM-T): $14.57 in fiscal 2021 and $14.30 in fiscal 2022.
  • National Bank of Canada (NA-T): $8.98 in fiscal 2021 and $8.90 in fiscal 2022.
  • Toronto-Dominion Bank (TD-T): $7.74 in fiscal 2021 and $7.60 in fiscal 2022.

Valuation

According to Bloomberg, the stock is trading at a price-to-earnings multiple of 11.96 times the fiscal 2022 consensus estimate, relatively in-line with its 10-year historical average multiple of 11.78 times. If the P/E multiple were to expand to 13 times, this would equate to a share price of approximately $145, based on the current fiscal 2022 consensus estimate.

The average 12-month target price is $143.82, implying the share price has 8 per cent upside potential over the next year (including the dividend yield, this equates to a potential total return of over 11 per cent).

Target prices are quite concentrated with 13 of the 14 target prices falling between $142 and $150.

Its peers are trading at the following forward P/E multiples, according to Bloomberg:

  • Bank of Montreal shares are trading at 11.27 times (10-year historical average multiple is 10.98 times).
  • Bank of Nova Scotia at 10.58 times (10-year average is 11.08 times).
  • CIBC at 10.49 times (10-year average is 9.95 times).
  • National Bank at 11.85 times (10-year average is 10.32 times).
  • TD Bank at 12.29 times (10-year average is 11.65 times).

Chart watch

Year-to-date, shares of Royal Bank have been a laggard relative to most of its peers. Royal Bank’s share price is up 27 per cent in 2021. Meanwhile, shares of TD are up 30 per cent, CIBC up 38 per cent, BMO up 45 per cent and National Bank up 47 per cent. Only Scotiabank’s have delivered a lower price return, climbing just 21 per cent so far this year.

In addition, shares of Royal Bank have underperformed the S&P/TSX Financials Sector Index, which is up 31 per cent in 2021.

In terms of key resistance and support levels, the stock price has initial overhead resistance around $135, near its record closing high of $134 set on Oct. 22. After that, there is a ceiling of resistance around $145. Looking at the downside, there is strong technical support around $125.

POSITIVE BREAKOUTSNov. 12 close
AAV-TAdvantage Oil & Gas Ltd $8.28
AFN-TAg Growth International Inc $33.71
CLIQ-TAlcanna Inc. $10.00
AXU-TAlexco Resource Corp. $2.70
AIF-TAltus Group Ltd $68.13
AR-TArgonaut Gold Inc $3.83
ATZ-TAritzia Inc. $52.46
ACB-TAurora Cannabis Inc. $10.72
BMO-TBank of Montreal $140.27
BNS-TBank of Nova Scotia $83.39
ABX-TBarrick Gold Corp $26.06
BSX-TBelo Sun Mining Corp $0.73
BIR-TBirchcliff Energy Ltd $7.79
BSR-XBluestone Resources Inc. of Canada $1.81
BEI-UN-TBoardwalk Real Estate Investment Trust $55.10
BBU-UN-TBrookfield Business Partners LP $64.00
CF-TCanaccord Genuity Group Inc $16.52
GOOS-TCanada Goose Holdings Inc. $63.44
CP-TCanadian Pacific Railway Ltd $97.26
CWB-TCanadian Western Bank $41.43
CLS-TCelestica Inc $14.53
DSG-TDescartes Systems Group Inc $110.19
DSV-XDiscovery Silver Corp. $2.22
DRM-TDREAM Unlimited Corp $34.03
DPM-TDundee Precious Metals Inc $9.56
EQX-TEquinox Gold Corp. $10.63
EIF-TExchange Income Corp $47.28
FSZ-TFiera Capital Corp $11.47
FIL-TFilo Mining Corp. $13.00
FNV-TFranco-Nevada Corp $187.50
GXE-TGear Energy Ltd $1.08
GIL-TGildan Activewear Inc $53.14
GGD-TGoGold Resources Inc $3.67
GOLD-TGoldMining Inc. $2.02
GCM-TGran Colombia Gold Corp. $5.70
GMG-XGraphene Manufacturing Group Ltd. $5.19
GBR-XGreat Bear Resources Ltd. $22.10
HWX-THeadwater Exploration Inc. $5.23
HCG-THome Capital Group Inc $45.31
IMG-TIAMGOLD Corp $4.16
IBG-TIBI Group Inc. $13.90
IVN-TIvanhoe Mines Ltd $10.46
KNT-TK92 Mining Inc. $8.12
KXS-TKinaxis Inc $211.29
K-TKinross Gold Corp $8.69
MG-TMagna International Inc $108.48
MND-TMandalay Resources Corp $2.85
MMX-TMaverix Metals Inc. $6.73
MTA-XMetalla Royalty & Streaming Limited $10.48
MRC-TMorguard Corp. $144.51
NA-TNational Bank of Canada $105.44
NGD-TNew Gold Inc $2.22
NUAG-TNew Pacific Metals Corp. $5.30
OGC-TOceanaGold Corp $2.79
ORE-XOrezone Gold Corp. $1.37
OLA-TOrla Mining Ltd. $5.54
OR-TOsisko Gold Royalties Ltd $16.83
OSK-TOsisko Mining Inc. $3.21
POU-TParamount Resources Ltd $24.75
PLC-TPark Lawn Corp. $39.98
PPTA-TPerpetua Resources Corp. $6.71
PEY-TPeyto Exploration & Development Corp $11.40
PTM-TPlatinum Group Metals Ltd $3.87
PRMW-TPrimo Water Corp. $24.43
STC-TSangoma Technologies Corp. $28.49
SHOP-TShopify Inc. $2,095.01
SIL-TSilverCrest Metals Inc. $12.16
ZZZ-TSleep Country Canada $40.80
SII-TSprott Inc $58.41
SSRM-TSSR Mining Inc. $24.71
STN-TStantec Inc $71.12
TXG-TTorex Gold Resources Inc $16.10
TIH-TToromont Industries Ltd $113.26
TD-TToronto-Dominion Bank $93.39
TGL-TTransGlobe Energy Corp $3.96
TCN-TTricon Residential Inc $18.04
UNS-TUni-Select Inc $20.92
VB-TVersaBank $16.54
WDO-TWesdome Gold Mines Ltd. $13.21
WTE-TWestshore Terminals Investment Corp $28.05
ZEN-XZen Graphene Solutions Ltd. $6.70
NEGATIVE BREAKOUTS
ABST-TAbsolute Software Corp $12.75
BYD-TBoyd Group Services Inc. $212.04
BRAG-TBragg Gaming Group Inc. $9.83
CPX-TCapital Power Corp $40.50
CCA-TCogeco Communications Inc $104.03
FVI-TFortuna Silver Mines Inc $4.85
GDI-TGDI Integrated Facility Services Inc. $51.48
ITP-TIntertape Polymer Group Inc $26.15
LAS-A-TLassonde Industries Inc $169.26
LSPK-TLifeSpeak Inc. $6.81
LWRK-TLifeWorks Inc. $28.02
MAGT-TMagnet Forensics Inc. $36.00
DR-TMedical Facilities Corp $9.18
RICH-CNRaffles Financial Group Limited $5.30
TBL-TTaiga Building Products Ltd. $2.22
LCFS-TTidewater Renewables Ltd. $14.15
TMD-TTitan Medical Inc $1.37
WEF-TWestern Forest Products Inc $1.74

Source: Bloomberg and The Globe and Mail

This report is not an investment recommendation. The Breakouts file is a technical analysis screen intended to identify companies that are technically breaking out. In addition, this report highlights a company’s dividend policy, analysts’ recommendations, financial forecasts, and provides a brief technical analysis for a security to provide readers with more information.

If a stock appears on the positive breakouts list, this indicates positive price momentum, and that a company may be worthwhile for investors to look at the fundamentals in order to determine if the recent price strength is warranted and will continue. If a security appears on the negative breakouts list, this indicates negative price momentum, and may be indicative of either deteriorating fundamentals or perhaps indicates a buying opportunity.

Securities screened are from the S&P/TSX composite index, the S&P/TSX Small Cap index, as well as Canadian small cap stocks outside of these indexes that have a minimum market capitalization of $200-million.

A technical analysis screen does not replace fundamental analysis, but can help identify companies worth having a closer look at.

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