Broker Eight Capital reckons it will be difficult for the Royal Bank of Canada (TSE:RY.) to outperform in the next 12 months and repeated a 'neutral' stance on the shares, saying there is better upside for investors elsewhere.
It comes after the beat strongly beat estimates in second quarter results, posting an 11% increase in earnings, aided by capital markets and its wealth management businesses.
Earnings per share (EPS), excluding one-off items, rose to $1.85 per share in the quarter to April 30 from $1.66 a share a year earlier.
The firm beat EPS due largely to very strong contributions from Capital Markets, which drove about half the beat, noted analyst Steve Theriault, who added it was a "relatively solid quarter overall with good expense control and good credit experience".
Despite the solid bottom line, trading revenues were weaker than expected, added the analyst, at $766mln versus $825mln in the previous quarter and $812mln, year-on-year.
"While the bank is focused on carrying its Q2 momentum forward, noted was a general market slowdown due to political uncertainty and questions around U.S. monetary and tax policies. Something to keep in mind as Q3/17 unfolds .....," said Theriault.
Though the analyst added that the landscape can change quickly and there's still more than two-thirds of the quarter still to come.
The broker lifts its target price to C$102 from C$98 previously on the back of the higher earnings, but adds: "While disciplined expense management and other improvements in retail banking argue for a premium multiple, a +10% premium to the group limits upside in our view and we believe it will be difficult for the stock to outperform over the next 12 months."