RBC Capital Markets moved Banco Santander S.A. up a notch to an "outperform" rating from "sector perform" on Monday, while increasing its 12-month price target to €12.25 from €8.50. The upgrade comes in advance of Santander’s Investor Day on Feb. 25 and follows what RBC describes as a market consensus that has become somewhat disordered due to recent earnings, acquisition activity and an accounting restatement.
The London-based team at RBC, led by Benjamin Toms, now projects a fiscal 2028 return on tangible equity including AT1 of 19.5%. That sits above the present market consensus of roughly 18% and approaches Santander’s own guidance of greater than 20%.
RBC’s revised target implies about 14% upside from the stock’s current trading level of €10.76 on the Madrid Stock Exchange, where Santander is listed under the ticker SAN.
The new €12.25 target is produced from a sum-of-the-parts valuation using fiscal 2028 estimates, discounted back two years to 2026 at an assumed cost of equity of 11.2%. RBC notes Santander’s implied cost of equity at around 11% is 110 basis points below its historical average since 2013, according to the brokerage’s data.
At the center of RBC’s thesis is what the firm terms a "self-help" phase focused on cost reduction. The analysts model Santander’s cost-to-income ratio falling by roughly 4 percentage points to about 38.2% by fiscal 2028 - around 2 percentage points lower than current consensus. The improvement is driven by positive operating jaws in each year of the plan, with three-year constant currency revenue growth modelled at a compound annual rate of approximately 9% against cost growth of approximately 3%.
On returns to shareholders, RBC forecasts total distributions of about €33 billion across the next three years, split into roughly €15.6 billion of dividends and €17.3 billion of buybacks. That amount represents approximately 21% of RBC’s present market capitalisation figure of €157.9 billion.
The brokerage translates this into a three-year average total return yield of around 7%, rising to an estimated exit fiscal 2028 yield of about 9%. RBC’s ordinary dividend per share forecasts are €0.26 for 2026, €0.40 for 2027 and €0.47 for 2028.
Adjusted diluted earnings per share are modelled at €1.01, €1.28 and €1.53 for fiscal years 2026, 2027 and 2028, respectively. These forecasts compare with prior RBC estimates of €0.94 and €1.06 for 2026 and 2027, while 2028 had not been previously estimated by the brokerage.
On valuation, RBC highlights an unusually wide 12-month forward price-to-tangible-book gap between Santander and its closest peer BBVA of 0.35 times. The brokerage says this gap has never been larger versus a historical average absolute gap of approximately 0.12 times. RBC frames the disparity as a buying opportunity, noting that an historical discount closed in 2025 but has re-opened in 2026.
Under RBC’s estimates, Santander’s shares trade at 1.65 times fiscal 2026 estimated tangible book value, and the brokerage’s fiscal 2028 tangible book value per share estimate is €7.65.
RBC also cites Santander’s showing in the 2025 European Banking Authority stress test. The firm points to Santander’s adverse-scenario worst-case common equity tier 1 impact of minus 170 basis points as among the more contained outcomes in the European peer set, using this as evidence of below-average earnings volatility.
Capital forecasts from RBC place Santander’s CET1 ratio at 12.8% for fiscal 2026, rising to 13.1% by fiscal 2028, on the assumption the bank operates at the top end of its 12%-13% target range. Cost of risk across the plan is modelled at an average of about 110 basis points.
RBC views Santander’s two recent deals - the acquisition of TSB in the U.K. and Webster Bank in the U.S. - in a positive light, estimating a combined capital impact of roughly 190 basis points of CET1. The firm expects these transactions to provide the bank with scale in geographies currently delivering sub-optimal returns, and models the U.S. division’s pre-tax profit rising from €1.64 billion in fiscal 2026 to €3.59 billion by fiscal 2028.
RBC does, however, flag several risks. The brokerage lists political exposure in Brazil, Spain and the U.K., risks tied to M&A execution, the potential for larger-than-expected regulatory capital impacts, and litigation risks linked to motor finance and AXA PPI matters.
Analytical context - RBC’s upgrade relies on a combination of improved profitability metrics, cost efficiencies and material shareholder distributions in its three-year plan. Valuation anomalies versus a key peer and a contained stress-test performance underpin the firm’s constructive stance.