Royal Bank of Canada Earnings: Decent Results but Credit and Acquisition Costs are a Headwind

Wide-moat-rated Royal Bank of Canada reported decent first-quarter earnings that were largely in line with our expectations, as solid Canadian banking results were offset by higher expenses and credit costs. Adjusted net income, which accounts for both transaction expenses related to the acquisition of HSBC Canada and the CAD 1.05 billion Canadian recovery dividend payment made last year, decreased 5% from last year to CAD 4.1 billion. These results translate to an adjusted return on equity of 14.9%, which is somewhat below the firm's medium-term target of 16%. As we incorporate these results, we do not plan to materially alter our CAD 134/USD 101 per share fair value estimate for Royal Bank of Canada. We see the shares as fairly valued.