Royal Bank of Canada (RBC) stock sits at ATH ahead of earnings: is it a buy?

The Royal Bank of Canada (TSX: RY) stock price has risen for two consecutive months and is sitting at its all-time high (ATH). 

It has risen by over 20% this year, outperforming the TSX Composite Index and other Canadian banks like Bank of Montreal (BMO), TD Bank, Bank of Nova Scotia, and Canadian Imperial Bank of Commerce. 

RBC vs BMO vs Scotiabank vs TD Bank vs CIBC

Why RBC beats other Canadian banks

Royal Bank of Canada is the biggest Canadian company with a market cap of over $164 billion. It is followed by Toronto Dominion Bank, Shopify, and Enbridge.

Over the years, the company has accumulated over 17 million customers from 29 countries. It is also the 9th biggest bank globally by assets and the number 1 Canadian investment bank in the United States.

RBC has achieved this growth by using a diversifed market. Most of its revenue comes from personal and commercial banking followed by wealth management, capital markets, and insurance. 

This diversified model lets these businesses support each other. For example, the company’s P&CB business has done well because of higher interest rates, offsetting the softness in the investment banking business.

The most recent annual results showed that RBC’s business was growing. Its revenue jumped to over $56 billion, up from $48 billion a year earlier. In this, P&CB revenue was over $8 billion while wealth management, insurance, and capital markets made $2.4 billion, $803 million, and $4.1 billion, respectively.

RBC earnings ahead

The next important catalyst for the RBC stock price will be its quarterly results, which will come out on Wednesday. 

Its most recent results, published in May, showed that its net income rose by 7% to $4 billion while its Return on Equity (RoE) eased by 40bps to 14.5%. These results included its acquisition of HSBC Canada, which the company bought earlier this year. 

All of RBC’s businesses did well in its fiscal second quarter. P&CB income rose by 7% to $2 billion while its wealth management rose by 7% to $769 million. Insurance and capital markets business rose by 4% and 31%.

Analysts believe that RBC’s business did well in the fiscal third quarter. However, there are concerns about the banking sector after some weak results by Bank of Montreal and Scotiabank.

BMO said that its profits dropped in some key sectors while provisions for credit losses rose, signaling that the Canadian economy was not doing well. Its net income dropped to $4.79 billion while provisions for credit losses rose to $906 million.

Scotiabank, on the other hand, made $1.92 billion in net income, a sharp decline from the $2.19 billion it made last year. Its diluted EPS dropped to $1.40 while provisions for credit losses rose to over $1.052 billion. Its net income fell to $1.92 billion. 

Scotiabank and BMO’s stocks diverged on Tuesday. Bank of Nova Scotia rose by almost 2% while BMO fell by over 6%.

The average revenue estimate is that RBC’s revenue came in at $14.24 billion while its forward guidance for the fourth quarter will be $14.37 billion. For the year, its revenue is expected to come in at $56 billion.

RBC stock price analysis

The daily chart shows that the RBC share price has been in a strong bullish trend in the past few months. This rebound happened after the stock fell to $104 in 2023. 

In the past few months, the stock has formed an ascending channel and is hovering near its upper side. The stock has also remained above the 50-day and 100-day Exponential Moving Averages (EMA).

Despite the surge, the Relative Strength Index (RSI) shows that the stock is not yet in an overbought level. Therefore, there is a likelihood that it will continue rising as bulls target the next key resistance point at $160. However, the alternative scenario is where the stock retreats and retests the lower side of the channel.

• All currencies in this report are in Canadian dollars.