What Are The City’s Expectations For Royal Bank of Scotland Group Plc’s Profits?

How might earnings at Royal Bank of Scotland Group plc (LON:RBS) change in the years to come?

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

When weighing up a potential investment, we always need to look forward rather than backwards. If you buy a stake in a business, it’s the future profits that count — and the stock market will value your shares based on future expectations.

With that in mind, it can be helpful to review what expert City analysts are expecting a company to earn in the coming years. These expectations can be compared to the share price, to give you a better idea of how the stock market is valuing the business.

Today I’m looking at the earnings per share (EPS) forecasts for Royal Bank of Scotland (LSE: RBS) (NYSE: RBS.US), the FTSE 100 bank. All my figures are courtesy of S&P Capital IQ.

Analysts expect RBS to earn 21p per share in the coming year. This estimate means that, compared to today’s share price of 323p, the market is valuing RBS shares on a forward price-to-earnings multiple of 15. That being said, the experts are far from in agreement — 26 different estimates range from profits of 35p per share to just 11p per share this year.

Looking ahead, the consensus then calls for RBS to earn 32p per share in 2014 before reaching 38p in 2015, a whopping 28% annualised growth. Once again though, the range of the estimates is tremendous, and the most optimistic of analysts reckon RBS shares could even earn 59p by 2015.

These impressive growth expectations highlight the potential for investors willing to take a risk on the speculative factors surrounding RBS. But the sheer range of expectations also possibly highlights the extent to which it’s difficult, if not impossible, to reasonably estimate the bank’s earning power. If even the experts are completely divided on RBS’s earnings potential, is it really possible to value the business?

Whether the City’s profit projections and the current valuation make the shares of Royal Bank of Scotland ‘fairly priced’ is for you to decide. But if you already own shares in Royal Bank of Scotland and are looking for an alternative growth opportunity, in this exclusive stock research report our top analysts have pinpointed a highly interesting opportunity.

We call it The Motley Fool’s Top Growth Stock For 2013, and it’s completely free to download, with no strings attached, available for a limited time only.

Just click here to download it for free!

> Mark does not own any shares in this article.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

More on Company Comment

Hand of person putting wood cube block with word VALUE on wooden table
Company Comment

Value has been building behind the Diageo share price

Despite the business growing, the Diageo share price first reached its current level just over 19 months ago and hasn't…

Read more »

Older couple walking in park
Investing Articles

5 stocks to buy for high and rising dividend income

I can see a host of shares to buy on the FTSE 100 offering me exceptional levels of income. Here…

Read more »

Young mixed-race woman looking out of the window with a look of consternation on her face
Investing Articles

I don’t care if FTSE 100 shares fall further, I’m buying them today

I'm happy to go shopping for FTSE 100 shares today, even though I accept that they could have further to…

Read more »

Happy young female stock-picker in a cafe
Investing Articles

Rolls-Royce shares are down 18% in a month and I’m finally going to buy them

Investors who bought Rolls-Royce shares have been repeatedly disappointed, but I'm willing to take a chance on them before they…

Read more »

Storytelling image of a multiethnic senior couple in love - Elderly married couple dating outdoors, love emotions and feelings
Investing Articles

How I’d invest £10k in a Stocks and Shares ISA today

Now looks like a good time to buy cheap FTSE 100 shares inside a Stocks and Shares ISA. These are…

Read more »

Black father holding daughter in a field of cows
Investing Articles

Today’s financial crisis is the perfect moment to buy cheap shares

I'm building a portfolio of FTSE 100 stocks by purchasing cheap shares whenever I see an opportunity. There's a good…

Read more »

Long-term vs short-term investing concept on a staircase
Investing Articles

I’d buy Tesco shares in October to bag their 5.4% yield 

Tesco shares have fallen lately but I think this makes them attractively valued for a dividend stock I would aim…

Read more »

Young mixed-race woman looking out of the window with a look of consternation on her face
Investing Articles

I would do anything to hold Diageo in my portfolio (but I won’t do that)

Diageo is one of my favourite stocks on the entire FTSE 100 and I'd love to hold it, but one…

Read more »