Is the vulnerable RBS share price too cheap to ignore ahead of Q2 earnings?

ftse 100
ftse 100

RBS share price is down by more than 1.70%, becoming the fourth worst-performing stock in the FTSE 100 after Burberry, BT, and Imperial Brands. Other bank stocks too have disappointed. HSBC, Standard Chartered, and Lloyds share prices are down by more than 1% even as the FTSE 100 gains by more than 0.60%.

RBS stock price performance

“Will RBS share price ever recover?”. In the past five years, it has dropped by 67%, making it the worst-performing banking stock in the FTSE 100. In comparison, Lloyds share price has fallen by 56% while Barclays and HSBC have declined by 48% and 44% respectively.

Zooming in, the trend remains the same in the past year. In this period, the shares have dropped by 47% while Barclays has dropped by only 25%. YTD, RBS share price is the second-worst performer after Lloyds. The chart below shows the performance of the company in the past five years.

RBS vs peers
RBS share price vs peers

Surprisingly, RBS stock price has lagged even after the company made some major improvements in its business. Foe example, the bank made more than £3.5 billion in net profit in 2019. This is after it reinstated its dividend in 2018. Also, its CET1 ratio has been relatively stable at about 16%.

The current underperformance is mostly because of the coronavirus pandemic. Like Lloyds, RBS makes most of its money from consumers and businesses. As such, it is incredibly exposed to low interest rates and customer defaults. With rates in the UK at historic lows, there is a possibility that the firm will be under pressure.

RBS reacts to American bank earnings

The shares are also falling today in reaction to the bank earning season that is going on in the United States. As I reported earlier, Citigroup, JP Morgan, and Wells Fargo, boosted their allocations to provisions to more than $26 billion yesterday. This means that they are expecting their customers to have significant defaults as the economy worsens.

Therefore, because European banks tend to be weaker than their American counterparts, most people believe that RBS will put more funds to provisions.

RBS is due to release its earnings on June 31st. In the first quarter, its profit fell by 49% to £519 million because of a £902 million impairment charge. Therefore, there is a possibility that the firm will deliver weaker results than it did in the previous quarter.

Is it a good time to buy RBS shares? Analysts have mixed opinios about RBS shares. In a recent note, analysts at Goldman Sachs lowered their estimate to 195p, which is still 76 points above the current level. Morgan Stanley expects the stock to climb to 175p. However, those at Deutsche Bank see the shares dropping to 100p.

RBS analysts forecasts
RBS analysts forecasts

RBS share price technical outlook

RBS share price is at 119.25. On the daily chart, the shares are slightly below the 50-day and 100-day exponential moving averages. The price is also trading in a range as shown by the rectangle below. Therefore, the outlook for the shares is neutral at this point.

A move above the upper side of the rectangle at 127p will mean that bulls have prevailed. Similarly, a move below the lower side at 114 will be a victory for bears, which will see the price continue falling.

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RBS stock price technical outlook

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