The Toronto-Dominion Bank (TSX:TD) just released its second quarter (Q2) earnings. The release was a major beat, with revenue up 9.1% year over year, ahead of estimates by $1.7 billion; and earnings per share (EPS) ahead of estimates by $0.19.
Going into the release, analysts were not expecting much from TD Bank. Late last year, the bank’s executives guided for no growth in 2025, so analysts accordingly assigned revenue and EPS estimates that were more or less unchanged year-over-year. The adjusted EPS figure was more or less consistent with this, being down 3.4%. However, revenue increased by an impressive 9.1%, while reported EPS was up 365%. It was a pretty good showing for a bank that said it would have a hard time doing any growth at all this year. In the ensuing paragraphs I will explore TD Bank’s earnings release in detail and explain why I continue holding after earnings.
Earnings recap
Some highlight metrics from TD Bank’s Q2 earnings release were:
- $15.1 billion in revenue, up 9.1% year over year and 0.7% sequentially (beat by $1.7 billion).
- $7.9 billion in net interest income (NII), up 12.9%.
- $6.28 in reported EPS, up 365%.
- $1.97 in adjusted EPS, down 3.4% (beat by $0.09).
- $1,341 in provisions for credit losses (PCLs), up 25%.
- A 14.9% common equity tier 1 (CET1) ratio, improved from $13.4%.
- An 8.7 leverage ratio, unchanged.
These metrics were frankly far ahead of what almost any Wall Street Analyst expected for the quarter. The revenue beat was 11% of total revenue, and the CET1 ratio actually improved despite increased risks in TD’s U.S. retail segment. Likewise, the positive growth in NII was a big, positive surprise given higher default rates in some of TD’s markets. It was a good showing.
Future prospects
It’s one thing to note that a bank had a good quarter, but quite another to confidently declare that it will continue having similar quarters going forward. TD is under a $430 billion asset cap in the United States, traditionally its fastest-growing retail banking region. So, there is something to the idea that TD faces impediments to growth.
We can assess TD’s future prospects by taking a look at its most recent earnings call presentation. In the presentation, the bank said that it still expected some costs related to the anti-money laundering (AML) remediation U.S. regulators forced it to undergo. However, it also said that it expected such costs to be fully absorbed by the end of 2027. Likewise, the bank said it would cut its workforce by 2%, which should offset the higher compliance costs. Overall, TD looks well positioned to thrive in the year ahead.
Valuation
Despite its recent earnings beat and stock surge, TD stock is still cheap by several metrics. At today’s price, it trades at 11.5 times earnings, 3 times sales, and 1.4 times book. These are lower than the average multiples on North American money centre banks today. They are also lower than the multiples that Royal Bank of Canada (TD’s closest competitor) trades at. So, TD still looks like a deal.
