Yesterday, The Toronto-Dominion Bank (TSX: TD) released its earnings for the fiscal third quarter of 2026. The release widely exceeded analyst expectations, with revenue coming in a whopping $1.9 billion ahead of what was expected, and earnings per share (EPS) beating the estimate by $0.30 or 12.1%.
TD stock reacted positively to the results, rising 1.2% on the day after the earnings came out. That’s not surprising, given that the earnings that were released handily beat expectations. Stocks are valued based on expected future earnings; when new data is published showing that the latest earnings were higher than previously thought, that increases the perception that earnings will be higher in the future. However, that doesn’t necessarily make TD stock a buy. TD releases its earnings before markets open, the most recent release having been Thursday morning. So, the markets have already had time to react to the earnings that came out, as well as management’s post-earnings call. So, let’s take a look at TD’s most recent earnings release so we can determine whether the stock is still a buy after vastly beating expectations in Q3.
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Growth and profitability
In terms of growth, TD’s third quarter was quite strong. In the quarter, the company’s revenue increased 8.4% and its earnings increased 20.7%. I’m using the adjusted figures for both revenue and earnings here; the reported (GAAP) earnings growth rate was actually a little higher.
Turning to some less commonly looked at metrics:
TD’s net interest income (NII) increased 8.3% in the third quarter. Its assets, equity, and deposits all increased by low single digits. Its ROE improved from 11.3% to 15.8%. The bank’s strongest segment performance was in wholesale banking (basically investment banking), which grew its earnings by 87% year over year. Despite the considerable growth seen in virtually all of TD’s income statement categories, the bank’s capital adequacy and provisioning were conservative, with a 14.3% CET1 ratio and $1 billion worth of provisions for loan losses. So, TD’s third quarter release was a win across growth, profitability, and risk management.
Valuation
Now onto the most challenging part of the equation for TD investors:
Valuation
Going by the bank’s own history, TD stock is pricey today, trading at 18 times adjusted earnings, 19 times reported earnings, 4.7 times sales, and 2.3 times book value. I’ve been reading about TD, and owning its stock on and off for about six years. The current multiples are the highest I’ve ever seen.
Now, you might think that a 19 P/E ratio isn’t overly high. Compared to the big tech companies, and even the TSX index, it’s below average. However, banks tend to be valued somewhat differently than other companies. They are extremely leveraged, with liabilities (including deposits) often being dozens of times shareholder equity. Asset prices moving in the wrong direction by 10% can wipe out a bank’s entire equity. So, investors usually demand lower multiples from banks than other companies.
The bottom line
The bottom line on TD Bank’s third quarter earnings release is that it was a major beat, but not enough of one to totally make up for the valuation concerns discussed above. I still own TD stock – in fact, it’s my largest position – but I trimmed my shares by 35% recently. The third quarter release, while very strong, did not make me question my decision to take some money off the table.
