Royal Bank (RY.TO)

EPS of $3.85 beat estimates of $3.54; revenue of $17.2B beat estimates of $16.7B.  Royal Bank of Canada's raised return on equity target of 17% or higher, above consensus, appears achievable given robust capital generation and improving cost efficiency. Nontrading net interest income may grow at a mid-single-digit rate, aided by a shift toward noninterest-bearing deposits. Despite a cautious outlook, RBC expects mid- to high-single-digit commercial-loan growth, while mortgage activity might not improve until 2027. The bank's positive operating leverage goal for fiscal 2026 (6% in 2025), including 1-2% in Canadian banking, will be underpinned by mid-single-digit expense growth and progress in artificial intelligence. Capital markets and wealth management are key drivers. Provisions are likely to stay elevated, with the 2026 impaired provision ratio expected near 2025's 37 bps. We would consider it a good quarter, and the outlook, considering the Canadian economy, better than expected. The stock gets a premium valuation for its size and safety, but we would not really see it as overpriced considering the dividend and growth potential.
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Likes both for the longer term. Owns both. Hesitant to add to either right now, given the move each has had. TD has moved up the most this year. Interestingly, RY has moved up the least. So it's traditional premium versus the other banks has narrowed.

Both released really good earnings. Both beat in capital markets, with focus on wealth management. Instead, she'd look at traditional banking metrics such as PCLs and loan growth.

Better places to deploy capital right now with higher and growing dividends. See her Top Picks.

Banks in general have had a great year so far. BOC has cut rates, so the spread is good between lower deposit rates and higher mortgage rates. 

One concern for banks is if mortgage renewals come in at higher post-Covid rates. What's that going to do to the consumer? Using more take-home pay to pay down debt instead of buying stuff puts downward pressure on the economy.

Next year will be more challenging.

Probably the best-managed bank in Canada, maybe one of the best in the world. All divisions do well, and capital markets have made them a lot of $$ recently (though it can be cyclical). Even if you have capital gains, why sell?  Decent dividend of ~3%.

His firm owns RY, BMO, and TD as cornerstone holdings in its dividend-growers mandate. Canadian banking is a stable, well-regulated oligopoly. Structurally profitable, heavy barriers to entry. Diversified by line of business and by geography. Its fee-based businesses should be very profitable this quarter.

One fly in ointment:  tepid loan growth demand, especially in mortgages, and to a lesser extent in commercial loans. Thinks the worst of credit loss provisions is behind the Canadian banks.

Outlook in Canada is a bit rosier than it was 6 or 12 months ago. He'd continue to hold the banks. Holds this name for almost all clients, and hasn't trimmed that position in many years. In fact, he adds when it sells off. It's his preference to own the highest-quality bank and ride it through the ups and downs, rather than switching among the banks.

Premium valuation for a premium bank with premium assets. Likes the name, but doesn't want to pay over $200. Didn't like many of the bank earnings last quarter because PCLs were released back into earnings once worst-case tariff scenario didn't come to pass. This was premature and too optimistic. Fears our economy might get worse before it gets better.

If you have it in your portfolio, keep it. But she's holding off on buying right now. 

Increases dividend every year. Premium valuation for good reason -- good management team, global wealth management, big trading platforms, and good investment banking. Not as cheap as it was, but he holds because it's well run and a solid pillar of Canadian economy.

Whole Canadian banking sector is fully valued, trading effectively at record highs on valuation. Not time to load up. Time to take some profits and invest in more defensive names, as Canadian economy is on a more fragile footing than other parts of the world.

Is always possible. It happens once in a while among Canadian banks. One reason is that the bank would want to expand liquidity. RY is the captain of the Canadian industry.

By far the best bank in Canada, but premium for quality is a bit excessive. So he prefers some of the others.

Any potential stock split is irrelevant. The banks have been a wonderful thing in Canada, steady dividends that get raised frequently. Wouldn't sell and pay tax just to buy something else. Cooking on all cylinders. Best bank in Canada.

Know that all the banks have upped their non-Canadian exposure, so it's now about 50/50 Canada vs. outside Canada. RY has a very efficient US investment banking business, and is trying to expand retail. 

A done deal. Stocks tend to split above $100, though a stock is meaningless. It's rate to see a bank rise 6% in one day after reporting monstrous earnings growth. RY has been dominant a long time. The PE remains attractived.

The question asked the guest to compare the two with a view to buying one of them. She prefers Royal Bank right now. It just delivered record results and is growing at 10% year over year. TD has gone through a rough patch and is re-structuring which is eating into profits. She doesn't think Royal Bank will split.

Banks in general have performed quite well this year in spite of the pressure of 5 year mortgages coming due at higher interest rates. Banks are good for long term holds of 5 to 10 years or longer with increasing dividends and capital appreciation. Royal Bank is the biggest.