We are lowering our fy18 eps estimate to c864 from

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We are lowering our FY18 EPS estimate to C$8.64 from C$8.82 on somewhat weaker revenue trends, and our FY19 forecast to C$9.22 from C$9.65. Based on an exchange ratio of C$1.00/US$0.77, our U.S. dollar estimates are $6.65 for FY18 and $7.10 for FY19. FINANCIAL STRENGTH & DIVIDEND Our financial strength rating on Royal Bank of Canada is Medium-High, the second-highest rank on our five- point scale. RBC had an adjusted 18.1% return on equity in 2Q18, above the industry average. It scored above average in efficiency, with an adjusted 54.5% efficiency ratio in 2Q18. At April 30, 2018, RBC’s Basel III tier 1 common equity capital ratio was 12.3%, up from 12.0% the prior year. RBC paid US$2.74 in dividends in fiscal 2017. It raised the quarterly dividend to C$0.94 from C$0.91 beginning in 2Q18. The shares yield about 3.7%. Our dividend estimates are US$2.87 for fiscal 2018 and US$2.99 for fiscal 2019. MANAGEMENT & RISKS David McKay became CEO in April 2014, replacing Gordon Nixon, a 13-year company veteran. Mr. McKay began his career at the company in 1988 and has risen through the ranks. In 2012, he was named “Retail Banker of the Year” by Retail Bank International. Rod Bolger is the company’s CFO. Investors in Royal Bank of Canada face risks, including the company’s high exposure to the energy sector. In Canada, only the Bank of Nova Scotia has a higher proportion of energy sector loans. The company’s high energy industry exposure also creates ancillary risks for its wealth management business. In addition, RBC faces risks related to the implementation of new technology. COMPANY DESCRIPTION The Royal Bank of Canada is one of Canada’s largest banks. It is also one of the largest banks in the world, with a market capitalization of $110 billion. The company has 80,000 employees in 37 countries.
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M ARKET U PDATE - 7 - VALUATION RY shares have traded in a range of $70-$87 over the past 52 weeks, and are currently around the middle of this range. In valuing RBC, we look at several Canadian peers, including Bank of Montreal, CIBC, and Toronto Dominion. Among this group, RY has stronger projected earnings growth (6.5% versus a peer average of 6.2%), a higher ROE (15.8% versus an average of 14.4%), and a better efficiency ratio (61% versus an average 63%). We would expect a higher P/E ratio for RY based on these better metrics. Our target price of $94 implies a multiple of 13.5-times our forward four quarters EPS estimate of $6.95, and a total potential return of 26%, including the dividend yield. On June 8 at midday, BUY-rated RY traded at $76.88, up $0.35. (Stephen Biggar, 6/8/18)
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M ARKET U PDATE - 8 - UNITED NATURAL FOODS INC. (NGS: UNFI, $39.56) ............................................ BUY UNFI: Lowering target price following 3Q EPS * On June 6, the company reported fiscal 3Q18 earnings that topped consensus estimates. It also raised its FY18 earnings guidance but lowered its cash flow guidance after reporting negative free cash in 3Q.
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