RBC has moderating expense & revenue growth in Q3

Our long-term thesis on the firm is unchanged, and we maintain our FVE

Eric Compton 21 August, 2019 | 2:43PM

Wide-moat Royal Bank of Canada (RY) reported OK fiscal third-quarter results, and our long-term thesis on the firm is unchanged. Earnings growth slowed, with revenue up only 5%, while expenses were well controlled, up only 2%. This led to adjusted earnings per share growth of 6% for the quarter, roughly on par with last quarter.

Management emphasized that it is cognizant of the potential revenue headwinds coming from slowing economic growth and lower interest rates, and that a key lever to offset this will be expense management. Management reaffirmed its target for slower expense growth in the second half of the year compared with roughly 7% in the first half. Management did not reference its previous 7% EPS growth goal for the year, but it should be giving a more detailed update during fourth-quarter results. With adjusted EPS up roughly 6% year to date and building rate cut pressure, it might come in just below 7%.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar Rating
Royal Bank of Canada83.05 CAD-4.73

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Eric Compton

Eric Compton  Eric Compton is an equity analyst for Morningstar,