TD Appears Positioned to Weather the Upcoming Downturn

We think the bank remains adequately capitalized, but based on these results, we are lowering our fair value estimate

Eric Compton 29 May, 2020 | 11:39AM
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TD Bank

Wide-moat-rated Toronto-Dominion Bank (TD) reported fiscal second-quarter results that reflected the impacts of the coronavirus-related economic downturn, though the bank still reported decent results from a top line and balance sheet perspective. TD missed S&P CapIQ consensus estimates, with adjusted earnings per share coming in at $0.85, down approximately 51% year-over-year. This result was accompanied by a concurrent 51% year-over-year decline in adjusted net income. The bottom line was pressured this quarter as a result of an approximately 250% increase in provisioning compared with the last quarter as the bank shores up against loan losses. This is a trend seen among all the Canadian and U.S. banks under our coverage, as the banks are boosting reserves in anticipation of future COVID-19-linked losses. TD still saw decent top-line results, with revenue up 3% and expenses down 2% compared with the year-ago period. This resulted in a 48.6% efficiency ratio, an impressive result for a bank. The adjusted return on common equity came in at 9.8%. TD's common equity Tier 1 ratio was 11%, down from 11.7% last quarter. A 10% quarter-over-quarter increase in risk-weighted assets contributed to approximately 80 basis points of this decline. Even so, we think the bank remains adequately capitalized to weather this downturn. Based on these results, we are lowering our fair value estimate to $80.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar Rating
The Toronto-Dominion Bank82.20 CAD0.12Rating

About Author

Eric Compton

Eric Compton  Eric Compton is an equity analyst for Morningstar,

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