Royal Bank Q2 Profit Beats Expectations on Capital Markets Strength; Shares Up 1%

Shares of Royal Bank of Canada (RY) gained more than 1% in early trading Thursday after Canada’s second-largest bank beat profit estimates in its second quarter. Strong activity in capital markets and recovery of loan provisions boosted results.

Revenue totaled C$11.62 billion in the second quarter, increasing 12.5% from C$10.33 billion in the prior-year quarter. Analysts expected revenue of C$11.77 billion.

Net income came in at C$4 billion (C$2.76 per diluted share) for Q2 2021, compared to Q2 2020 net income of C$1.48 billion (C$1.00 per diluted share). On an adjusted basis, the Canadian bank earned C$2.79 per share. Analysts expected the Royal Bank of Canada to report adjusted EPS of C$2.48 in the three months ended April 30.

One of the main reasons that profits are skyrocketing is that the Royal Bank recovered C$96 million in credit loss provisions during the quarter. These funds had previously been set aside to cover loans that were likely to default.

Profit from Canadian retail banking amounted to C$1.91 billion in the quarter, up from C$532 million a year ago. Wealth management profit increased 63% to C$691 million, up 63% from C$424 million year-on-year, while insurance profit rose 4% to C$187 million thanks to lower claims. (See Royal Bank of Canada stock analysis on TipRanks)

Royal Bank of Canada CEO Dave McKay said, “The strong momentum we’ve achieved in the first half of 2021 reflects our focused strategy to deliver exceptional experiences and create more value for clients. RBC brings this to life through the combination of our powerful scale, strong market share growth, prudent risk management, and significant multi-year investments in talent and technology. While there is reason for optimism as recovery continues to take hold, we know the pandemic’s path forward still poses challenges. We remain firmly committed to helping our clients thrive and communities prosper, and to being an enabler of a more inclusive and sustainable future.”

Following the results, Canaccord Genuity analyst Scott Chan maintained a Buy rating on RY and a C$129.50 price target, for 3% upside potential.

The rest of the Street is bullish on RY with a Strong Buy consensus rating based on 7 Buys and 2 Holds. The average analyst price target of C$128.37 implies 2% upside potential to current levels.

TipRanks’ Smart Score

RY scores a 9 out of 10 on TipRanks’ Smart Score rating system, indicating that the stock has strong potential to outperform the overall market.

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