T-D tops among financial stocks to buy

A pillar of Bay Street, Toronto-Dominion is also one of Canada’s big-five bank stocks. Based in its namesake city, TD is a full range financial services provider including retail banking, brokerage, wealth management and commercial banking. Toronto-Dominion also boasts a big footprint in the U.S., rimming the East Coast with a chain of branches from Maine on down to Florida.

It’s a rare analyst indeed who’d turn up his nose at a company’s efforts to cut costs.

And Sumit Malhotra, an analyst with Scotia Capital in Toronto, isn’t giving short shift to a $337 million restructuring charge taken by Canadian bank stock Toronto-Dominion Bank (TSX─TD) in its second quarter.

TD, which will reallocate most of the funds to its personal and commercial banking unit in the U.S., will use the money for process redesign, real estate optimization, as well as for cutting layers of management.

Mr. Malhotra admits he understands the rationale behind the restructuring, noting that the bank expects the program will strip away two per cent of TD’s expense base by 2017.

But he thinks the effort will take time to make it felt in the earnings column.

He also fears the restructuring will increase volatility in the bank’s earnings per share over the near term.

As a result, he’s lowering his recommendation on Toronto-Dominion to “sector perform”.

Our stable of analysts remained bullish on TD this month. Of the 10 other folks we polled, all 10 recommended the bank as a “buy”, making it the top pick among financial sector stocks and lofting it into third position in our over-all list of must-have stocks.

For the second quarter of 2015, TD notched operating net earnings of $1.14 a share.

Not only was this five per cent higher year over year, it was also $0.03 above Mr. Malhotra’s own forecast, as well as $0.03 above the consensus call.

Net income itself rose to $2.2 billion from $2.1 billion, while total revenue grew to $7.8 billion from $7.6 billion.

For the six months ended April 30, TD’s net income increased to $4.3 billion or $2.26 a share, from $4.1 billion or $2.15 a share, for the similar period in 2014. Revenue was also higher, rising to $15.4 billion from $15 billion.


Investor’s Digest of Canada, MPL Communications Inc.
133 Richmond St. W., Toronto, On, M5H 3M8, 1-800-804-8846

Comments are closed.