Key Morningstar Metrics for Royal Bank of Canada
- : C$235.00Fair Value Estimate
- : ★★Morningstar Rating
- : WideMorningstar Economic Moat Rating
- : LowMorningstar Uncertainty Rating
What We Thought of Royal Bank of Canada’s Earnings
Royal Bank of Canada RY reported solid fiscal third-quarter results. Adjusted earnings per share of C$4.28 grew 11% from the prior-year quarter. The results translate into an adjusted return on equity of 17.9%, above the bank’s medium-term target of 17.0%-plus.
Why it matters: While net interest income growth of 5% (7% excluding trading) year over year was in line with RBC’s full-year guidance for mid-single-digit growth, it was slower than the peer average of 8% in the quarter.
- RBC’s net interest margin declined 2 basis points from the prior-year quarter, worse than most of its peers. Management said the purchase accounting accretion from HSBC Canada rolling off has created a headwind of around 4 basis points per quarter, which the bank should lap in the second quarter of fiscal 2027.
- Loan growth of 8% year over year was impressive, though, given the bank’s size, and it was ahead of most peers in the quarter.
The bottom line: As we incorporate wide-moat Royal Bank of Canada’s latest results, we anticipate increasing our fair value estimate by a high-single-digit percentage. We continue to assess the shares as overvalued.
- The increase in our valuation will be primarily driven by higher fee income growth from the bank’s wealth management and capital markets businesses in the near term, which will be partially offset by lower 2026 net interest income and higher expense growth.
Coming up: Similar to peers that have reported this cycle, RBC did not indicate any meaningful changes to its fiscal 2026 credit guidance amid the latest tariff announcements between the United States and Canada. Its last guidance was similar to the 2025 level, which was 37 basis points of provisioning for impaired loans.
