The Toronto-Dominion Bank (TSX:TD) is one of Canada’s biggest banks. It is the second largest by market cap, and the largest by total assets. Over the last few decades, TD Bank has grown far more rapidly than the average Canadian bank has. Starting in the 2000s, it began buying up U.S. bank chains, growing them to the point where the U.S. ‘TD Bank’ became the ninth largest bank in that country. This year, TD continued its tradition of expanding into the U.S., with its acquisition of the boutique investment bank Cowen (now TD-Cowen Securities).
TD Bank has fared comparatively well this year for a Canadian bank. For the year, its stock is down only 2.6% – that’s very good for a bank after the Spring U.S. bank crisis sent the whole sector tumbling. There are a few bank stocks that are appreciably up in price this year, but for the most part, the sector is lagging. TD is doing better than most. In this article I will explore whether TD Bank stock is a buy, sell or hold at today’s prices.
TD’s recent earnings
TD Bank’s most recent earnings were mixed. Revenue and net interest income both increased significantly, but GAAP earnings (earnings calculated using GAAP accounting rules) declined. The highlight metrics were:
- $11.1 billion in revenue, up 7.2%.
- $3.4 billion in net income, down 12%.
- $3.8 billion in adjusted net income, up 1%.
- $1.96 in diluted earnings per share (“EPS”), down 2.9%.
It might seem like this was a bad showing, what with earnings per share going down, but looks can be deceiving. In the same period, TD Bank’s peer companies, like Royal Bank and Bank of Montreal posted much larger declines in earnings than TD did. A few of them saw their revenue decline as well. So, TD is outperforming the competition on the earnings front.
M&A activity
One big development for TD Bank this year was its attempted M&A deals. It made two deals: one to buy the boutique investment bank Cowen, and another to buy the U.S. regional bank First Horizon. The First Horizon deal got shot down by U.S. regulators but the Cowen deal closed. Today, Cowen is contributing earnings to TD Bank, and stands a good chance of delivering positive earnings growth in the current quarter, as U.S. investment banking is beginning to recover from its 2022 slump.
Results from big U.S. banks
Speaking of U.S. banking: its time to turn to TD’s U.S. peer companies.
When they released their second quarter earnings in July, JP Morgan and Bank of America both beat expectations, delivering large increases in revenue as well as earnings. JP Morgan’s growth was particularly impressive, with net income rising 67.3%. These banks are very similar to the U.S. part of TD’s business, which represents 40% of TD’s business overall. So, there are some tentative signs that TD will deliver strong results when it reports earnings at the end of this month.
Taking everything into account, I consider TD’s stock a good ‘hold’ today. I own the stock, and have no plans of selling it. It has run up a lot since March, so maybe now isn’t the best time to add new shares. But if you bought in the past, I see no reason to sell now.
