Toronto-Dominion Bank (TSX: TD) stock has recovered nicely since its lows in the March 2023 banking panic. That month, when several U.S. banks failed, TD stock dipped as low as $77.33. Today, it’s at $81.30, a nice 5.13% gain.
There hasn’t been a lot of news about TD Bank lately. The company’s First Horizon merger and acquisition deal is still delayed, and management is still optimistic that it will close. Since the most recent earnings release, we haven’t gotten much new information that could be called “material.” However, we do have some clues we can use to help us determine whether TD Bank stock is a good buy today. We can start by looking at the bank’s most recent earnings release.
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Most recent earnings
In its most recent quarter, TD Bank delivered the following:
- $0.82 in earnings per share, down 59%
- $2.23 in adjusted earnings per share, up 8%
- $1.7 billion in Canadian banking earnings, up 7%
- $1.58 billion in U.S. banking earnings, up 25%
It was a pretty strong quarter, overall, though with some caveats. While adjusted earnings grew a lot, the reason they grew so much was because they excluded a $1.6 billion legal settlement. That’s a real cost that investors probably shouldn’t just write off as non-meaningful. If you include that cost, earnings fell 59%. However, the organic growth in U.S. retail banking, leaving the fine aside, was very strong, which indicates that TD may have good quarters to come once the settlement cost has been fully absorbed.
Good earnings from U.S. banks
Another clue we have as to how TD is performing now is the performance of U.S. banks. American banks are reporting earnings this week, and the results are generally pretty good. For example, JPMorgan put out a release that showed a 50% increase in net interest income, beating analyst expectations. The stock rallied nearly 8% on the day the release came out. That bodes well for TD’s U.S. retail business, which operates in the same market as JPMorgan Chase.
A little pricey compared to U.S. banks
One downside of TD Bank stock is that it’s a little pricey compared to U.S. bank stocks right now. At today’s prices, TD trades at
- 9.4 times earnings;
- Three times sales;
- 1.39 times book value; and
- 9.7 times operating cash flow.
By contrast, you can buy Bank of America (NYSE: BAC) stock now for 9.25 times earnings and 0.96 times book value. So, Bank of America is a lot cheaper. I hold both TD and Bank of America shares in my portfolio, but I have been favouring the latter for purchases this year, because it’s so much cheaper than TD is. That does not mean I don’t like TD stock anymore: I haven’t sold a single share. But I do consider BAC a somewhat better buy at today’s prices.
Foolish takeaway
Taking everything into account, TD Bank stock looks like a pretty good value. Its revenue is growing, it has several big deals in the works, it’s highly profitable, and it has a lot of exposure to the lucrative U.S. market. Just beware the valuation, though — it’s not the cheapest financial stock out there.
