The biggest bank just got a whole lot bigger. Shares of Royal Bank of Canada (TSX:RY) have been climbing higher and higher as Canada’s largest bank by assets and market capitalization was given approval for the purchase of HSBC. The closure date of the proposed acquisition will now be on March 28, 2024. Does that mean it’s now too late to buy Royal Bank stock?
What happened?
It has been on the books for a while, but it’s now official. Royal Bank stock will be purchasing HSBC and all of its Canadian branches and offices will be open for business as of April 1, 2024 as Royal Bank locations. The company will be adding 780,000 HSBC bank Canada clients to Royal banks’ already large portfolio. But there are other advantages beyond a mere client count.
Canadian banks have been drooling over the seventh-largest Canadian banking institution for about a decade now. However, this got more serious and last year the company announced it was putting itself up for sale. After months of back-and-forth with the approval of the Canadian government, Royal Bank stock was finally approved to make the purchase.
This now puts it even more ahead as the largest bank in Canada. However, it also expands Royal Bank’s enormous portfolio of wealthy clients. In particular, Royal Bank stock will see a large increase in wealthier clientele who are newcomers to Canada.
Icing on the cake
This adds some icing on top of a pretty delicious cake for Royal Bank stock investors. The company has beat out earnings estimates for the last two quarters in a row, while many of its competitors have seen earnings fall below estimates. During the last quarterly report, Royal Bank stock reported net income of $14.9 million for the year ending October 31, 2023. This was down 6% from the year before, but beat out estimates.
Royal Bank stock also increased its provisions for credit losses by $2 billion compared to a year ago, especially for higher provisions in its personal and commercial banking, and capital market segments. Even so, the bank stated that these provisions continue to move upwards from pandemic lows.
The bank also saw pre-provision, pretax earnings of $20.9 billion. This demonstrated a 2% increase from last year, thanks to higher net interest income. There was also higher revenue in capital markets, which came from higher revenue in its corporate and investment banking, and global market segments. Finally, Royal Bank stock managed to also increase its dividend by 2% during the quarter.
Still a buy?
The question now becomes whether all this good news makes Royal Bank stock overvalued. The answer is a clear no. Shares of Royal Bank stock are currently trading at about $132 per share. However, 52-week highs put it at $140 per share, which is the current consensus price target.
Add in the company’s current dividend yield at 4.17%, and honestly you’re probably still getting a deal on this strong stock. Especially as the company hasn’t even put HSBC on the books yet. Frankly, Royal Bank stock continues to show that it’s the dominator among the Canadian banks. And this doesn’t look like it will change anytime soon.
In a continuously volatile market, Royal Bank stock seems to be taking advantage of opportunities for its investors, and increasing the reasons for investors to consider the stock on the TSX today. So with a solid dividend yield, growth strategy, and already strong earnings, the stock is a clear buy for today’s investor.
