The year 2023 started on a strong note for Canadian bank stocks, with the TSX Composite Index rising more than 7% in January after witnessing a sharp selloff last year. However, broader market uncertainties don’t seem to be ending soon, as the recent collapse of multiple regional banks in the United States has raised fears of contagion among other weak financial institutions.
The ongoing banking sector turmoil is the main reason why the shares of the largest Canadian bank Royal Bank of Canada (TSX:RY) have slipped 5.2% in March so far after gaining 8.8% in the first two months of the year. Before we discuss whether RY stock could regain investors’ confidence to be a big winner in 2023, let’s quickly review some key factors that affected its share price movement last year.
Royal Bank of Canada stock
Just like 2023, Royal Bank stock started 2022 on a positive note, as it inched up by 8% in the first month of the year. However, as inflationary pressures and rapidly rising interest rates started taking a toll on investors’ sentiments, nearly all bank stocks gave up gains to turn negative.
Later in the year, the Russian invasion of Ukraine further worsened the global macroeconomic scenario. Given all these negative factors, experts predicted that the U.S. and Canada might enter a moderate recession in early 2023. These concerns were some of the key reasons that affected RY stock’s performance last year.
But its financial growth trend remains strong
Despite all the macroeconomic challenges, Royal Bank’s financial performance in recent quarters has been solid. In its fiscal year 2022 (ended in October 2022), the top Canadian bank’s revenue fell 1.4% YoY (year over year) to $49 billion. Nonetheless, its adjusted earnings for the fiscal year remained stable at $11.19 per share, reflecting no notable change from the previous fiscal year.
In the January 2023 quarter, Royal Bank’s financial growth trend significantly improved, as it registered a solid 16% YoY increase in its total revenue to $15.1 billion. Despite a rise in its higher provisions for credit losses, a high-interest rates environment and strong loan growth improved the performance of its Canadian banking and wealth management segments, helping it register 8% YoY positive growth in its adjusted quarterly earnings to $3.10 per share. With this, the bank also exceeded Street analysts’ earnings expectations of $2.94 per share.
Could it be a big winner in 2023?
Royal Bank stock currently trades with 3.1% year-to-date gains at $131.27 per share with a market cap of $180.6 billion. The bank expects a slowdown in annual mortgage and loan growth this year due to deteriorating affordability and other economic concerns, which could temporarily affect its business. Nonetheless, Royal Bank plans to expand its core private banking, lending, and payment services offerings for RBC Brewin Dolphin clients this year, which should improve its fee-based revenue growth.
While recent banking sector turmoil has led to a sharp decline in bank stocks lately, Royal Bank’s strong fundamental outlook and strong financial growth trends could still help it be a winner in 2023. Besides these positive factors, RY stock also offers a decent 4% dividend yield at the current market price, making it even more attractive for passive-income investors to buy now.
