Key Morningstar Metrics for Royal Bank of Canada
Royal Bank of Canada’s RY capital markets segment had a strong performance in fiscal 2025, mostly driven by impressive results from its trading business.
The bottom line: We are increasing our fair value estimate for wide-moat Royal Bank of Canada to C$196 per shar efrom C$169. We still view the stock as overvalued, as we believe the market is over-extrapolating the strong performance of the bank’s trading income.
- Around C$3 of the increase comes from the time value of money, C$20 from higher short-term growth and profitability, and C$4 from higher midterm profitability.
- Our normalized efficiency ratio forecast is now 55.8%, up 120 basis points compared with 57.0% prior. We also increased our normalized return on tangible common equity to 20.1% from 19.2%.
Long view: While we believe Royal Bank of Canada has taken some market shares in the global capital markets businesses over the past several years, we view 2025 trading results as above midcycle levels.
- For context, trading income ranged between C$0.9 billion to C$1.2 billion from 2020 to 2022. By contrast, trading income was C$2.4 billion, C$2.3 billion, and C$3.1 billion in 2023, 2024, and 2025, respectively.
- We forecast a normalization in trading income by a decline of 20% in 2026.
Key stats: Excluding trading income, we forecast noninterest income to grow at 4.7% in 2026. We project total noninterest income to grow at a CAGR of 3.0% from 2025 to 2030. We forecast expense growth of 5.2% in 2026, mostly driven by compensation and technology investments.
- We expect a relatively stable net interest margin between 1.61% to 1.62% over the next five years, and we forecast net interest income growth to grow at a CAGR of 4.2% from 2025 to 2030.
- Our return on equity projection over the next five years is between 16.2% to 16.9%, slightly below the bank’s updated medium-term tarreceive of 17%-plus (prior: 16%-plus).
Editor’s Note: This analysis was originally published as a stock note by Morningstar Equity Research.
The author or authors do not own shares in any securities mentioned in this article. Find out about
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