After trading on a mixed note for several months, a recovery in shares of Royal Bank of Canada (TSX:RY) seems to be regaining strength in May 2024. Royal Bank stock has gone up by more than 9% so far this month to currently trade at $145.34 per share, increasing its market cap to $204.6 billion. With this, the largest Canadian bank stock is not far away from its all-time high of $149.15 per share, posted in January 2022. While Royal Bank stock has been performing well in recent weeks, could it continue this strong upward momentum and reach $200 per share in the coming years?
In this article, I’ll try to answer this question by looking at some of the key factors that could drive its stock. This includes a look at Street analysts’ expectations for its upcoming quarterly earnings event, scheduled for Thursday, May 30.
Key reasons for Royal Bank stock’s recent rally
One of the main reasons for Royal Bank stock’s recent rally could be investors growing expectations that the central banks in the United States and Canada will soon start slashing interest rates and ease their monetary stance. For a little background, a negative trend in RY stock started in 2022 after the Bank of Canada began to rapidly raise interest rates to fight inflationary pressures. As inflationary pressures and high interest rates created a tough borrowing environment for consumers and businesses, the bank’s lending activities suffered. As a result, Royal Bank’s stock price declined by about 27% from its peak in January 2022 to its lows in October 2023.
However, since then, the macroeconomic scenario has improved significantly, thanks to better-than-expected economic growth and early signs of easing inflationary pressures. This has led many analysts and investors to believe that the central banks will soon reverse their hawkish stance and start cutting interest rates to stimulate the economy. This expectation has boosted the sentiment for Royal Bank and other Canadian banks, as lower interest rates could boost banks’ loan volumes and profitability.
Moreover, Street analysts’ positive expectations from Royal Bank’s upcoming earnings could be another reason for driving its share prices higher of late. Analysts expect the bank’s second-quarter earnings could rise more than 4% from a year ago to around $2.76 per share. In the previous quarter, its adjusted earnings per share slipped by about 6% year over year. Lower provisions for credit losses amid a gradually improving economic environment could be one of the main reasons for Street analysts’ optimistic earnings estimates.
Could Royal Bank stock reach $200?
Despite facing several operational challenges due to the global pandemic and macroeconomic concerns, Royal Bank stock has yielded 38.3% positive returns in the last five years and 95.6% in the last decade, even after excluding its dividends.
Looking at growing rate cut hopes and improving analysts’ expectations from Royal Bank’s financial results, RY stock has the potential to maintain strong upward momentum in the near term. In addition, the bank’s solid financial base and diversified business segments could continue to support its earnings growth in the long term. Given these strong fundamentals, I wouldn’t be surprised if Royal Bank stock manages to touch the $200 per share level in the coming years, which is around 38% higher than its current levels. It also offers a decent 3.8% annualized dividend yield at the current market price.
