Royal Bank of Canada (RBC) is expected to lead the pack in Canadian bank earnings next week, with analysts predicting a boost in performance due to the acquisition of HSBC Holdings PLC’s Canadian franchise. According to analysts at Jefferies Securities Inc., RBC’s exposure to more fee-based revenue from the acquisition is likely to outpace its peers in the upcoming second-quarter earnings release.
Analyst John Aiken highlighted the growth and efficiency opportunities provided by the HSBC acquisition for RBC, stating that the bank is well-positioned for outsized growth against its competitors. Aiken also mentioned that RBC is the only Canadian bank weighted towards fee-based revenue and positive operating leverage, setting it apart from its peers.
The report by Jefferies Securities Inc. outlined two key factors for outperformance in the upcoming earnings season: fee-based revenue weighting and the ability to generate positive operating leverage. RBC is expected to excel in both categories, with National Bank of Canada also showing strength in fee-based revenue.
Aiken emphasized the synergies RBC will derive from the HSBC acquisition, along with its existing exposure to fee-based revenues in wealth management and capital markets, which will help the bank outpace its peers in organic growth. As a result, Aiken upgraded RBC to a buy rating with a target price of $157.
Overall, the upcoming earnings season for Canadian banks is expected to be solid but unspectacular, with muted dividend increases compared to previous experiences. However, RBC’s strategic positioning and growth opportunities make it a standout performer in the banking sector.