The last few months have not been good for Toronto-Dominion Bank (TSX:TD). Sadly, headlines of bribery and drug money have shaken investors’ confidence in what was once considered one of the most trustworthy banks. In response, TD Bank’s stock price is down 23% from its 2022 highs.
Considering all of this, is TD Bank stock a buy in 2024?
TD’s money-laundering scandal results in a sizable provision
In discussing TD Bank’s future, I think it’s best to first deal with the realities of today. Most notable is the ongoing investigation into and settlement of TD Bank’s role in money laundering drug profits. This news came as a shock to many investors. Today, the bank is being fined for its role in this, and it has been left reeling, with many big changes coming.
TD’s latest quarter showed us a glimpse of the ramifications of this development, with the bank swinging to a net loss of $181 million. The bank was hit by a number of charges, including a $2.6 billion charge to cover anticipated costs to settle the money-laundering charges. The reported loss compares to net income of $2.88 billion in the same quarter last year.
On top of this, provisions for credit losses came in at $1.06 billion, up from $766 million in the same quarter last year. This reminds us that the credit situation is still precarious as the bank prepares for increasing credit losses.
Normalized results fall short of expectations
Even without the one-time special charges, TD Bank missed third-quarter earnings per share expectations, reporting earnings per share (EPS) of $2.05 versus expectations of $2.08. It’s not a big miss, but it’s a miss nonetheless. Revenue of $14.1 billion, however, came in ahead of expectations and increased a healthy 9.8%.
Looking ahead: TD faces restrictions
When considering whether we should buy TD Bank stock in 2024, we have to consider some of the possible non-monetary restrictions that might be placed on the bank as a result of the money-laundering scandal. These could include restrictions on growing the balance sheet. This would limit the bank’s growth opportunities and flexibility. It poses a risk to the bank’s future.
So, TD Bank stock continues to trade at a premium to the banking group. Its earnings multiple is currently at 19.6 times compared to a multiple of 15 times for its peer group. Also, TD Bank stock trades at a price-to-cash flow multiple of 16 times. This compares to a multiple of 12 times multiple for its peer group.
The bottom line
The added noise that has plagued TD Bank since the money laundering scandal broke has been a black cloud over it. In my view, the risk of continued monetary and non-monetary repercussions is real. Also, the hit that Toronto-Dominion Bank’s brand took as a result of the scandal could hinder its efforts to grow its business as successfully as in the past. People have long memories. They are very careful to avoid putting their money in a bank if they perceive it to be distrustful.
I would continue to watch TD Bank stock, but I would wait to buy it on weakness. Wait until the stock adequately reflects the risk associated with it.
