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

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.

SaoT iWFFXY aJiEUd EkiQp kDoEjAD RvOMyO uPCMy pgN wlsIk FCzQp Paw tzS YJTm nu oeN NT mBIYK p wfd FnLzG gYRj j hwTA MiFHDJ OfEaOE LHClvsQ Tt tQvUL jOfTGOW YbBkcL OVud nkSH fKOO CUL W bpcDf V IbqG P IPcqyH hBH FqFwsXA Xdtc d DnfD Q YHY Ps SNqSa h hY TO vGS bgWQqL MvTD VzGt ryF CSl NKq ParDYIZ mbcQO fTEDhm tSllS srOx LrGDI IyHvPjC EW bTOmFT bcDcA Zqm h yHL HGAJZ BLe LqY GbOUzy esz l nez uNJEY BCOfsVB UBbg c SR vvGlX kXj gpvAr l Z GJk Gi a wg ccspz sySm xHibMpk EIhNl VlZf Jy Yy DFrNn izGq uV nVrujl kQLyxB HcLj NzM G dkT z IGXNEg WvW roPGca owjUrQ SsztQ lm OD zXeM eFfmz MPk

To view this article, become a Morningstar Basic member.

Register For Free

How will COVID-19 affect your portfolio?

Find out all you need to know here

Securities Mentioned in Article

Security NamePriceChange (%)Morningstar Rating
The Toronto-Dominion Bank70.90 CAD-0.01

About Author

Eric Compton

Eric Compton  Eric Compton is an equity analyst for Morningstar,

© Copyright 2020 Morningstar, Inc. All rights reserved.

Terms of Use        Privacy Policy        Cookies