Best Stock to Buy Now: Is TD Bank of Canada Stock a Buy After Earnings?

TD Bank continues to weather the macro storm of the last few years reasonably well, with the stock up 8.4% since 2019.

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As one of Canada’s top banks, Toronto-Dominion Bank (TSX:TD) has earned its spot. Its strong history, diversified business, and risk-controlled business model have made TD the resilient bank that it is today. But is TD Bank stock a buy after its most recent earnings were plagued with rising provisions for loan losses and restructuring charges?

TD Bank stock remains firm as Q1 results beat expectations

In the last five years, TD Bank’s stock price has risen 8.4%. This might come as a surprise to those of us who have watched the stock tumble 25% from 2022 highs. But the stock has performed reasonably well over the medium term.

It’s very interesting to note that in the five years ended 2023, TD’s revenue has doubled due largely to its acquisition of SG Cowan, and net income has fallen more than 10%. TD’s latest result, Q1 2024, showed more of the same trends that we have already been seeing in 2023. For example, revenue increased 5% due to higher fee income and the acquisition of Cowan. Also, expenses were up 12%, and TD’s earnings per share (EPS) declined 10% to $2. But the bottom-line result beat analyst expectations, and that is a big positive for the stock.

While we can expect slowing growth due to the macro environment, TD Bank continues to see operating momentum, as seen in its loan growth numbers. For example, Canadian business banking loans increased 8%, and U.S. retail loans increased 9%.

Provisions for credit losses (PCLs) rise sharply

One of the big negatives in TD Bank’s result was the sharp increase in its PCLs, which came in at $1 billion. This was higher than analyst expectations and an increase from $690 million a year ago. The bank commented on the credit environment today, comparing it to pre-pandemic levels, as rising unemployment and elevated interest rates have challenged consumers. However, we can expect that the quality of TD’s loan portfolio will shelter it somewhat from this negative trend.

So far, TD Bank seems to be weathering these difficulties well. This can be evidenced by the strong loan growth in the quarter. It can also be seen in the bank’s success in the wealth management business, and in its capital markets business, which is benefitting from the Cowan acquisition.

Restructuring charges to bring future savings

In the quarter, TD Bank recorded restructuring charges of $291 million. This was the result of severance charges, real estate optimization, and asset impairments, to name a few. We can expect more restructuring charges to come as the bank continues to work on improving efficiencies. When all is said and done, we can expect savings of $400 million pre-tax in 2024, and an annual run rate savings of $600 million.

TD stock’s valuation remains attractive

In assessing TD Bank stock, I’m maintaining a long-term perspective. TD Bank has decades of experience and has survived and thrived, despite many bad moments. I think that this time will be the same. Although growth will likely slow and the macro environment will remain tough, TD Bank remains one of the best stocks to buy now for its strong long-term investment case.

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.

Fool contributor Karen Thomas has a position in Toronto-Dominion Bank. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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