Key Things to Watch in Toronto-Dominion Bank’s Upcoming Report

Here’s what investors need to know about Toronto-Dominion Bank’s (TSX:TD)(NYSE:TD) quarterly results — and what to expect next quarter.

| More on:
The Motley Fool

Toronto-Dominion Bank (TSX: TD)(NYSE: TD) is the sixth largest bank in North America by branches and counts 22 million customer as clients. The Canadian Retail Banking operation currently makes the largest contribution to net income at 65% followed by 27% from the U.S. Retail Banking and 11% from the Wholesale Banking operations.

Second-quarter profit was higher than expected

Second-quarter 2014 financial results were better than expected with adjusted earnings per share 15% ahead of the previous year. The overall business performed well with all divisions except Wholesale Banking reporting improved results. The star performance came from the U.S. Retail Banking division, supported by the weaker Canadian dollar. The return on equity of the overall business, a key measure of performance, also improved slightly to 16.6% during the quarter.

Further all-round improvement expected for the third quarter

The bank is expected to report results on August 28 and consensus expectations at the earnings per share level for the third quarter are set at $1.10, which will represent an increase of 33% compared to the previous year. The third quarter of 2013 was the weakest of the 2013 financial year, caused by losses in the insurance business resulting from increased weather-related and general insurance claims. The base for comparison will therefore be relatively low.

Toronto-Dominion is on record stating that the objective is to grow earnings per share by 7%-10% for the full year and seems to be on track to exceed this target.

The Canada Retail division should deliver strong results

The Canadian Retail banking division, which includes personal and commercial banking, insurance, and wealth management, is the largest and most profitable contributor to profits. Overall lending and deposit growth is expected to remain slow in Canada but the quarter could turn out to be very good for this division as the benefits of the $3.3 billion acquisition of the 540,000 Aeroplan credit cardholder portfolio at the end of 2013 will start to show up in the results. The third-quarter losses experienced last year by the Insurance division are not expected to be repeated giving further impetus to the results of the Canadian retail unit.

The U.S. Retail division has an operating performance profile substantially inferior to the Canadian Retail operation. This was discussed in more detail in my recent article but in short, the return on equity of the U.S. operation is about 20% of the profitability level of the Canadian operation, cost efficiency is 33% worse and provision for credit losses is double. Although there are signs of improvement, considerable improvement is still possible.

Also part of U.S. Retail business is the investment in the stockbroker TD Ameritrade Holding Corp (NYSE: AMTD). This company has been performing well on the back of strong improvements in the financial markets – the bank has already announced that the contribution of TD Ameritrade to the third-quarter results should be $76 million – which is a little more than last year despite the fact that the bank sold about 10% of its shares in Ameritrade since last year.

The smaller Wholesale Banking division includes capital markets services and corporate lending. Profit in this division is somewhat unpredictable as a result of the influence of trading and merger and acquisition advisory services. Apart from the revenue generating activities, the high cost levels will be scrutinised for improvement in the third quarter.

The share price has been performing well

The share price has been doing well over the past year adding 32% plus a dividend of around 3.5% and outperforming the other major Canadian banks. The share is still not expensively valued at a 12-month forward price-to-earnings ratio of 12.4 times, a dividend yield of 3.5% and with profit growth seemingly moving along at an accelerating pace, could continue to do well.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

More on Investing

Double exposure of a businessman and stairs - Business Success Concept
Investing

Better Buy: RBC Stock or the Entire TSX?

Royal Bank of Canada (TSX:RY) is a robust stock, but the index fund could be better long term.

Read more »

Family relationship with bond and care
Investing

Retirees: 2 Top TSX Dividend Stocks to Buy for TFSA Passive Income

Top TSX dividend stocks now trade at discounted prices for TFSA investors seeking passive income.

Read more »

young woman celebrating a victory while working with mobile phone in the office
Metals and Mining Stocks

Beat the TSX With This Unstoppable Dividend Stock

This dividend stock continues to outpace the TSX and then some, providing you with a dividend that you'll want to…

Read more »

Energy Stocks

Here’s My Top Stock to Buy Now, and it’s Not Even a Question

Tourmaline is a quality energy stock trading on the TSX. Here's why I remain bullish on TOU stock right now.

Read more »

Dice engraved with the words buy and sell
Tech Stocks

Selling Losers Before 2023? Buy These 2 TSX Stocks With the Proceeds 

There is one month to 2023. Now is the time to sell your loss-making stocks, take the tax advantage, and…

Read more »

A meter measures energy use.
Dividend Stocks

TFSA Investors: 3 Safe Utility Stocks to Buy and Hold for Decades

Here are three top utilities to spend some fresh TFSA cash on in the new year.

Read more »

money cash dividends
Dividend Stocks

TFSA Investors: An Easy Way to Boost Your Payouts to $350 Per Month

Because of the tax-free nature of the TFSA, investors have several advantages, especially when buying high-quality dividend stocks.

Read more »

Piggy bank next to a financial report
Investing

How to Turn $10,000 Into $200,000 for Retirement

Buy top dividend stocks and use the distributions to acquire new shares.

Read more »