Thursday, December 13, 2018

A Current AIM Program International Equity Holding: Accenture Plc (ACN) by: Edward Eisenhauer. "All Firms Need This Sidekick"


Accenture Plc (ACN, $161.07): “All Firms Need This Sidekick”
By: Edward Eisenhauer AIM Student at Marquette University

Disclosure: The AIM Equity Fund currently holds this position. This article was written by myself, and it expresses my own opinions. I am not receiving compensation for it and I have no business relationship with any company whose stock is mentioned in this article.

Summary:

        Accenture Plc (NYSE: ACN) is an investment holding company that engages in management and technology consulting and outsourcing services. ACN is made up of four segments: Communication and Media, Financial Services, Health and Public Service, Products, and Resources. They serve a variety of businesses across all sectors and government entities. Their services aim to streamline businesses processes, such a customer management systems, supply chain management systems, and other business processes by improving communication and data efficiencies. There services are focused on technology and cloud integration among all segments of the client firm.

        ACN is the global leader among its competitors in the technology and business process consulting space.

        ACN is on pace to continue its leadership with above average net sales growth of 5-8% estimated for 2019 based off 20 % global growth of emerging technologies.

        Accenture’s dominate business model and future growth projections rely heavily upon the ability to retain and attract talent, given emerging technologies are 60% of revenues.

        Analysts are optimistic for the future of Accenture and its competitors. A Capgemini survey reported that 77% of firms struggle with in-house tech talent and are relying on outsourcing  for service.

Key Points:

            Since Accenture has been added to the AIM portfolio, it has outperformed its analysts’ predictions for 3 quarters, beating both top line and bottom line estimates. ACN’s Q3 reported double digit revenue growth in all geographic segments except Europe, which still recorded growth of 9%, and in the Communication and Media, Product, and Resources business segments. Accenture is still in a powerful position for future growth as it continues to lead its space while also having growing global demand for its business. 77% of firms globally are relying on technology and management consulting services and their dependence on these services will continue to grow. Increasing speeds of technology evolution and increasing complexity gives Accenture’s service a sweet spot for all sectors.

            Since February 2018, Accenture has acquired more than 10 firms scattered across the world and within different business segments. To start, Accenture has acquired HO Communication in greater China to expand its digital design and commerce services to their clients in China. They have also acquired Mindtribe, Pillar Technology, and Designaffairs in Europe as bolt-on acquisitions to help design smart products (Designaffairs), and to help build and implement smart products into the business structure of their customers (Mindtribe and Pillar Technology). Most recently, on November 12, ACN acquired the swedish firm Kaplan. Kaplan will improve Accenture’s data-driven customer relationship management services and will allow Accenture to strengthen its end-to-end experience service for Northern European nations.

What has the stock done lately?

            Accenture is staying focused on generating and maintaining a substantial cash balance to continue their high rate of acquisitions. The recent 10k was released last month on October 24th and details much of what was discussed above. Its last 3 quarters sales growth was 14.9%, 15.8%, and 10.4% respectively and is expected to continue around 7-9% for 2019, keeping margins consistent at 14%. With the brexit deadline on the horizon, Accenture could be hurt by some legislation but also could see a boost in sales as companies look to restructure. According to a study conducted by Accenture, 90% of banks plan on implementing an Open Banking service for their commercial clients, which should boost sales growth into the double digits. Accenture is expected to profit from this industry move to Open Banking.

Past year Performance:

            Accenture YTD return is 5.21% and its 52 week change is 9.61%. Accenture has an average beta of 1.05 and its last 3 month return is -5.12%, which reflects the beta and recent market performance. Despite the recent dip in price, ACN has outperformed its benchmark and is still leading its competitors.


Source: FactSet
My Takeaway:

            As of late, Accenture’s stock price seems to be following the markets and is a relatively cheap buy right now, as markets are slumped. Based off the factors discussed above, Accenture is growing rapidly with 10 plus acquisitions made within the last year and double digit top line growth, paired with double digit industry growth. Accenture has an incredible bright future as technology continues to evolve and make its way into every sector across the globe. With increasing competition in all sectors globally, evolving industry 4.0, and the need for integration and efficiency to stay profitable, the demand for Accenture’s services is expected to explode. The brexit shakeup should give Accenture an opportunity for additional clients. Lastly, cloud services account for 60% of ACN revenues and global cloud growth is expected to grow by a CAGR of 21.1% for the next 5 years. To conclude, Accenture has immense long term growth potential as the global economy continues to digitalize.




Source: FactSet



A Current AIM Program International Equity Holding: Lululemon Athletica Inc. (LULU) by: Mary Kate Simon. "Lulu is Anything but a Lemon"



Lululemon Athletica Inc. (LULU, $133.62): “Lulu is Anything but a Lemon”
By: Mary Kate Simon, AIM Student at Marquette University



Disclosure: The AIM Equity Fund currently holds this position. This article was written by myself, and it expresses my own opinions. I am not receiving compensation for it and I have no business relationship with any company whose stock is mentioned in this article.
 Summary:

Lululemon Athletica Inc. (NASDAQ:LULU) designs and provides athletic apparel and accessories with a focus on clothing for yoga or other “sweaty endeavors” for their company-operated stores and directly to their individual customers in the United States, Canada, and internationally.

• As millennials continue to grow older, their demand for LULU products continues to grow with them.

• “Athleisure” is a major movement where athletic clothes take steps outside the walls of the gym and are worn as everyday clothes for both men and women.

• Management reaffirmed its guidance to achieve $4 billion in revenue by the year 2020.

• Lulu posted a 97% YOY EPS growth and has a 25% underlying sales growth.

Key points:

Lululemon Athletica continues to grow and increase their market share. Although some of their major competitors, such as Nike and Adidas, take up a much higher share, LULU is well positioned in the industry as a differentiated “sweaty pursuits” company. In the past, LULU has been highly focused on selling to younger women. However, LULU continues to break barriers in whom they sell to. There continues to be a heavy increase in men’s sales, increasing 80% in the last few years.

Recently, LULU has accumulated a new CEO—Calvin McDonald. McDonald is a growth-oriented leader with a track record that proves this time and time again. His goal is to continue to integrate the LULU brand with customers by giving them what they want: great quality clothes and easy access to buy them. A strong consumer mindset, a performance-driven approach and success in developing people, McDonald has helped LULU grow into a stronger brand, with both guest loyalty and passionate employees.

Including both e-commerce and store expansion, LULU continues to expand internationally with a 47% YOY growth in revenue outside the US. Their international expansion doubled with their growth digitally, LULU continues to break into new markets. Their digital ecosystem is getting numbers never seen from the company. Direct to customer revenue grew 48% YOY compared to their 18% growth in stores.

Product innovation plays a major role in LULU’s growth. In their Q2 earnings call, there were notes about how men’s and women’s pants posted comps a little over 30%, while women’s tops were increasing in the double digits. Customers are responding well to the new On the Fly product line that bring “athleisure” to another level. This office travel collection gains customers from Gen X and Baby Boomers. Their expansion out of only Yoga clothing will help diversify LULU’s product offerings. This will continue to help build LULU into a lifestyle brand with deeper customer relationships.

What has the stock done lately?

Lululemon boasts a Relative Strength rating of 98 and a Composite rating of 99—the highest possible rating for a stock. They are releasing their third quarter earnings report on Thursday, December 6th. This stock has more than doubled in 2018, given a 52wk high of 164.79 and a low of 65.30. This low occurred at the beginning of the year and has continued to grow throughout the year.

Past Year Performance:

Over the first half of 2018, LULU has outperformed the market substantially, gaining 59% compared to a 2% increase in the S&P 500. This rally painted a nice picture for LULU as they were one of the top retail stocks this year. Lululemon gave their shareholders plenty of reasons to send the stock higher and higher. Sales have blown through managements aggressive targets in the last two quarters, including a 47% YOY revenue growth.

Source: FactSet

My Takeaway:

Lululemon Athletica Inc. has had a year of expansion and growth. The company continues to break through managements goals and outperform the retail industry. With LULU’s highly reputable brand equity, they strive to set goals for the stock price over $180. People are concerned that the price may be currently overvalued; however, this growth company expanding internationally, increasing in store purchases and highly surpassing digital sales is not finished yet.


Source: FactSet



Marquette AIM Program Co-Founder, William Heard, Was Recently Highlighted in Forbes - Read More About Heard Capital



by Antoine Gara, Forbes Staff
Hedge Funds & Private Equity
Dec 13, 2018

Heard Capital founder, William Heard


Dec 13, 2018  For the $3 trillion hedge fund industry, this year is all but assured to be one of the worst on record. Big funds are shuttering on an almost weekly basis, and limited partners are tiring of investors who lagged the bull market but then failed to capitalize on recent bouts of volatility like the October selloff. For William Heard, a 36-year old Chicago-based manager, however, the current carnage is an opportunity many years in the making.

Over the past eight years, Heard, a native of Milwaukee, Wisconsin, has taken a quiet approach to breaking into the industry. Instead of seeking the spotlight at the start, Heard spent his time trying to learn from others, gaining counsel from some of Wall Street’s smartest investors, including billionaire Robert Smith of Vista Equity Partners and John Canning of Madison Dearborn Partners, and then slowly proving himself. This patient, unassuming approach is seen in Heard’s investing style. Often his best results come from simply listening closely to company management teams describe their business and strategy over time.

Heard Capital, his over-$50-million-in-assets firm, has posted 8%-plus net annualized returns in its flagship Heard Opportunity long/short fund since its inception in mid-2011, more than tripling its woefully performing hedge fund benchmarks. 

This year is a standout. Coming out of the carnage of October and November, Heard, who began taking risk off the table when markets were soaring at midyear, is up 10%, roughly matching his annual average returns of the past three years. By contrast, year-to-date, Goldman Sachs’s prime brokerages services unit estimates U.S. long/short funds are down 6%.

Heard’s entrance into the world of hedge funds began in his hometown of Milwaukee, where he took an interest in investing early on and earned a scholarship to Marquette University to study finance. He began reading classics like Peter Bernstein’s Against the Gods and catapulted his career by winning a summer internship at Merrill Lynch. His interest wasn’t casual. Wanting more investing education in his studies, by the time he graduated Heard had built an applied investment management program at Marquette, which became the first undergraduate business program to partner with the esteemed CFA Institute.

That initiative would serve him well when he launched his investing career just as Wall Street was set to enter the crisis. After graduation in 2005, he took a job as a special situations analyst with Milwaukee-based Stark Investments, one of the early large hedge funds in America. The role gave him a window into equity, credit and option markets and sectors like telecoms, technology and industrials. Already sketching out a plan to one day start his own fund, Heard began seeking advice. 

He made a connection with Madison Dearborn’s Canning at an industry conference, who found his plans credible and offered support. “He’s done a great job against many speed bumps and a lot of slammed doors,” says Canning, who adds since his first meeting with Heard, “He knew what he wanted to do and he knew what his approach was going to be.”

When the crisis struck in 2008, Heard left Stark ahead of heavy layoffs, began taking steps to build his firm and applied to business school as a backup. By mid-2009, he took his savings and left Milwaukee for Chicago, enrolled in business school, and with the help of Canning, began making connections with local investors like Jim Dugan, electronic trading pioneer Blair Hull, and the Staffords. Heard also reached out to Vista Equity Partners’ Robert Smith, who agreed to meet and says they formed an instant bond. “Over the years, we've made sure to talk every few months, and I have enjoyed helping him think through how to build his business,” says Smith.

By 2010, Heard felt he’d done enough legwork planning a firm and honing his investing strategy, so he created Heard Capital. After gaining momentum in fundraising, Heard dropped out of business school and, in 2011, began investing with around $10 million in assets, including from the likes of Smith and Canning.

Heard’s strategy is to lean on attributes like his own conviction. He runs a concentrated portfolio of 15 to 25 long investments in six sectors—telecoms, media, technology and software, financial services, energy, and industrial—where he owns knowledge. And he's a methodical researcher, willing to ingest volumes of information and sift through the pros and cons of an idea and avoid confirmation bias. To this end, he's a student of the ark of regulated industries like telecoms, media and energy in the United States, and the current strategy of the companies he's interested in. 

Heard focuses on what he calls a “say-to-do ratio,” in which he analyzes the business factors that are in a management team’s control, how they communicate those challenges or opportunities, and the credibility of their plan of action. When Heard finds there is a disconnect between his analysis and the street, he pounces.

At the end of 2014, Heard began combing the financial sector for firms that would benefit from the eventual end of the credit cycle and started researching firms like Equifax, TransUnion and Fair Isaac Corporation. While the first two were simply credit score managers, Heard decided Fair Isaac was misunderstood. The 2014 launch of its subscription-based decision management suite and its early 2015 acquisition of Tonbeller 

Compliance gave Heard the conviction Fair Isaac was transforming into a software company for the financial sector. Though this shift hit profit margins, Heard decided Fair Isaac's disciplined share buybacks—nearly 50% of its market capitalization in a decade—and its willingness to now invest in the business signaled a confident outlook from management. Trading in the $70s to start 2015, the year Head invested, Fair Isaac now changes hands for $190 a share.

“What I found with Fair Isaac was, not only was the valuation misunderstood in the marketplace but what they did as a business was misunderstood,” says Heard. He believes that when a good management team is pouring money into something they don’t have to, it indicates they’ve found a greater return on capital than stock buybacks. He calls Fair Isaac's transition from repurchases to investments "an uncanny signal.”

History is also a good anchor. Since his launch, Heard owned Time Warner, the media giant that controls HBO, Turner and Warner Bros., believing its programming would thrive even as consumers switched from cable bundles to streaming video. From a start in the $30s, Heard’s bet was an early winner. Forced to sell Time Warner for risk purposes amid a selloff to end 2015, Heard re-tested his analysis and rebuilt the position in January 2016 in the $60s. That year Time Warner shares shot up as it disclosed the profitability of HBO, reaffirming both Heard’s belief and eventually enticing buyers. 

In October, AT&T announced an $85 billion takeover of Time Warner at $110 a share. Heard studied up on antitrust case law and decided regulators would allow the combination. AT&T closed the deal this past June. “Uncertainty is always present,” says Heard. “It’s really about having a framework. I try to build a mosaic of facts and then figure out what’s the highest-probability outcome based on those facts.”

Finding the right balance between conviction and overconfidence is also critical. Since 2014, Heard has owned a large position in TransDigm, an aerospace parts giant he invested in to capitalize on rising air traffic. Because of its stellar performance, the position became a top holding for Heard by 2017. Then TransDigm was attacked by short-sellers and investigated by a congressmen for its billing practices to the Department of Defense. In response, Heard put on a low-cost hedge and began retesting his investment thesis, deeply researching criticisms of the company. Ultimately, he decided to stick to his guns. From a basis below $200 a share, TransDigm now trades above $350 and has returned nearly $100 a share in dividends to Heard.

That’s not to say he won’t admit mistakes. For instance, Criteo, a controversial digital advertising technology company that was criticized by shorts, was Heard's worst performer of 2017. But it could have been worse. After re-testing his thesis when scrutiny boiled over, Heard admitted to limited partners, “We were simply on the wrong side of the debate," and exited the position with an about 15% loss, but at prices nearly 50% above Criteo’s current trading value.

“William has remarkable conviction and wisdom without arrogance,” says Vista Equity’s Robert Smith. “He doesn’t have a prescriptive thought process,” Smith adds, pointing out Heard has, “a different lens on the world than others—and certainly other hedge fund managers.”

Canning, of Madison Dearborn, was impressed enough with Heard’s work that he introduced the young investor to Northwestern University’s endowment. Though the university didn’t invest, their recommendations motivated Heard to spend everything he could to build systems and a team that would comfort institutional money. Heard has reinvested just about every dollar of fees back into his firm, hiring two partners and working with firms like Monahan & Roth and Heidrick & Struggles to build a foundation. “He has built himself a team that is way beyond his fee income,” says Canning, who adds, “He's going to start landing some of these big institutions, and I think he's ready.”

This year, Heard Capital’s assets have grown beyond $50 million due to market appreciation and commitments from new investors like the Robert McCormick Foundation and the Nielsen Foundation. In addition to his long-short strategy, Heard runs a concentrated long-only strategy and one tailored to specific investor needs.

Having used the market as his measuring stick, Heard recently moved into his own offices in a tower overlooking Chicago’s financial district and is now ready to grow. “For me investing combines both the desire to build something based on meritocracy and the ability to communicate what I believe is a different approach.” He adds, “Investing rewards you for knowing yourself. It rewards you for being bold, and for taking a deep breath and pausing.”

And what about spending years trying to build a hedge fund at a time when many are starting to write the industry off? Heard replies, “I was afforded a unique opportunity and got support early on from people I admire. I didn’t want to wonder 'what if' because I didn’t take my shot.”



Tuesday, December 11, 2018

A Current AIM Program International Equity Holding: ICON Plc (ICLR) by: Luke Smrek. "An Iconic Strategy"



ICON Plc (ICLR, $143.56): “An Iconic Strategy”
By: Luke Smrek, AIM Student at Marquette University



Disclosure: The AIM Equity Fund currently holds this position. This article was written by myself, and it expresses my own opinions. I am not receiving compensation for it and I have no business relationship with any company whose stock is mentioned in this article.

 Summary:

ICON Plc (NASDAQ: ICLR) is a clinical research organization that engages in the provision of outsourced development services in the pharmaceutical, biotechnology, and medical device industries.

• In the past year, on July 27th, 2017. A subsidiary of the company ICON Clinical Research Limited acquired Mapi Development SAS and its subsidiaries. The acquisition of Mapi Group strengthens commercialization and its strategic research business and adds more market presence, analytics, real world evidence generation and strategic regulatory services.

• ICON ended 2017 with net revenue increasing $91.9 million or 5.5%, Operating profit for year-end 2017 increased by 6.1%

• At the beginning of 2018 the new revenue recognition standard ASC 606 Revenue from Contracts with Customers came into effect and ICON is in this transition period and it will affect their financials significantly moving forward.

• ICON is well positioned to adapt to the increasing market share of clinical research organizations, and enabling this growth is ICON’s core strategy of focusing on partnerships as they are becoming the industry’s top trusted partner of choice.

Key points: 

Since the end of quarter two, ICON has repurchased nearly $38 million worth of shares and year-to-date has repurchased $92 million overall at an average price of $125.58 per share. The company’s goal is to continue to repurchase shares as the end of the year approaches.
Key growth drivers remain in place for ICON as Biopharma R&D spending continues to increase at about 3% per year. Increases in the number of trials and outsourcing penetration rates will help customers improve their efficiency and productivity. This past year there has been a 60% increase in the number of new patients into the ICON trials and this progress is expected to continue which will provide ICON with a differentiated position on the challenge of reducing development time.

On October 1st, ICON announced the release of ADDPLAN neo, which provides an advanced integrated technology platform for design, simulation, and analysis of adaptive clinical trials. This tool will help convert theory into practice and will help make ICON’s software for trials more adaptive and efficient for its customers.

In the third quarter of 2018, revenue backlog grew to $5.3 billion which is a year-over-year increase of 10.5% with their top customer accounting for 9.8% compared to the end of the quarter last year. This shows that ICON is expanding their clientele and increasing their revenue simultaneously. 

What has the stock done lately?

Since November 2nd, 2018, the price has gone up from $137.33 to $143.56 representing a 4.54% increase in stock price. Over the last six months the stock price has increased by 10.61% and over the last year has increased and generated a return of 28.21%. This is a high figure and is largely due to the company continuingly launching new programs and new methods to increase their trial efficiency and customer satisfaction.

Past Year Performance: 

ICON has increased in stock price by 28.21 % in the last year and its performance is on the upward trend. With the release of ADDPLAN neo, and other new programs, the forward-looking trend for the company continues to look profitable and investors may look to gain confidence from ICON’s performance this last year.


Source: FactSet

My Takeaway:

ICON has performed well the last year and throughout its quarterly reports continues to improve on a yearly basis. As the clinical research organization industry looks to expand by 6% annually over the next four to five years, ICON is well positioned to gain market share and help lead this growth due to their extensive strategic plan with partnerships and being the industry’s top trusted partner of choice. ICON is continually releasing new programs to advance their software and improve the efficiency and productivity of its customers. If management utilizes the opportunities within the industry and the company continues to advance at the same rate it has been, then look for the value of ICON to continue to increase.


Source: FactSet


A Current AIM Program Small Cap Equity Holding: CryoLife, Inc. (CRY) by: Jianxin Ren. "CryoLife Poised to Restore Life to Their Stock Price"



CryoLife, Inc. (CRY, $30.49): “CryoLife Poised to Restore Life to Their Stock Price”
By: Jianxin Ren, AIM Student at Marquette University


 Disclosure: The AIM Equity Fund currently holds this position. This article was written by myself, and it expresses my own opinions. I am not receiving compensation for it and I have no business relationship with any company whose stock is mentioned in this article.
 Summary:

CryoLife, Inc. (NYSE: CRY) is a leading company in the manufacturing, processing, and distribution of medical devices and implantable human tissues used in cardiac and vascular surgical procedures focused on aortic repair. The company was founded by Steve Anderson in 1984 and is headquartered in Florida.

• Comparing to the third quarter of 2017. CryoLife increased 47% to $64.6 million in total revenues in the third quarter of 2018.

• CryoLife acquired JOTEC AG, a Swiss entity that they converted to JOTEC GmbH. And then, CryoLife merged with their Swiss acquisition entity, JOTEC GmbH.


• In November 6, 2017, CryoLife announces that enrollment has started in the Company’s BioGlue clinical trial in China. To gain approval to commercialize BioGlue in China, the result of this clinical trial will be used as the sample to submit to Chinese Food and Drug Administration (CFDA).

Key points:

Business development is still one of CryoLife’s major strategy. In order to grow their business, CryoLife keeps seeking potential acquisitions, distribution right, or licensing of enterprises or technologies that can be helpful for their current products, services, and infrastructure and enhance their capacity in the cardiac and vascular surgery areas. As a result of pursuing potential acquisitions, the companies that were bought by CryoLife are JOTEC and On-X. Along with acquisitions, they also try to license new non-core products to business partners for further development. CryoLife can receive outside funding to continue commercial development by licensing their products.

In June 19, 2018, CryoLife made an announcement about Marna Borgstrom joining its Board of Directors effective immediately. According to Pat Mackin, Chairman, President, and Chief Executive Officer, “Marna has nearly 40 years of escalating senior leadership experience at Yale New Haven Health System, where she was an integral part of the system's strategy and evolution into a multi-unit health system as the current CEO.” As an experienced leader with a deep understanding of the healthcare industry, Marna Borgstrom could help the company be more profitable and bring in advanced management experience.

            CryoLife also adopted new accounting standards in January 1, 2018. The new accounting standards give them an instruction about how to recognize revenue, including a five-step model to identify when revenue recognition should be appropriated. Based on ASC 606, CryoLife can recognize revenue when they determine the transfer the control of promised goods to their customers. Under the new accounting standards, CryoLife has been able to recognize more of their retained earnings.

            The proprietary product of CryoLife is BioGlue which can be used in cardiac, vascular, pulmonary, and general surgical applications. BioGlue can provide a tensile strength which is 4~5 times stronger than fibrin sealants. It starts to polymerize within half a minute and reaches the required strength in under 2 minutes.

What has the stock done lately?
Since reporting earnings on August 7th, the stock price of CryoLife has gone down from $32.65 to $30.49 which represents 6.62% decrease. The tariffs that are happening right create more volatility to the macroeconomic environment. Although, CryoLife’s stock price did not perform well in the past few months, it has still generated a considerable return for investors in the long run.
Past Year Performance:
CryoLife is currently on a downward trend, but its stock price has increased from $20.35 to $30.49 over the past year which represents 49.83% in value growth. The main drivers of the increasing stock price include successful acquisitions and strong financial performance. On-X revenues increased 36% in the third quarter in 2018 than the third quarter 2017. During the same period of time, JOTEC has 32% increase.

Source: FactSet


CryoLife’s third quarter showed a positive revenue growth rate and margin. The gross margin that is reported in Q3 was 66.1%. Because of two large meaningful acquisitions and improvement in the management team, I assume the company is going to expand its gross margin in the next few years. The takeover also has a positive impact on On-X, increasing ~10% market share in the U.S. by benefiting from CRY’s large salesforce. Although CRY’s stock price went down recently due to macro factors, it also provides a good opportunity for investors to entry.

Source: FactSet





Monday, December 10, 2018

A Current AIM Program International Equity Holding: Toronto Dominion Bank (TD) by: Danny Smerz. "TD on their way to a TD?"


Toronto Dominion Bank (NYSE:TD, $55.30) “TD on their way to a TD?”
By: Danny Smerz, AIM Student at Marquette University



Disclosure: The AIM Equity Fund currently holds this position. This article was written by myself, and it expresses my own opinions. I am not receiving compensation for it and I have no business relationship with any company whose stock is mentioned in this article.

Summary:

Toronto Dominion Bank (NYSE:TD) engages in providing financial products and services. It operates in the following business segments: Canadian Retail, U.S. Retail, and Wholesale Banking.

• In 2018 Q4, Net Interest Income was up 9% in the Canadian Retail Segment of the business (57.7% of Total Geographical Revenue).

• Total Deposits are up to $851.4B in FY 2018 compared to $832.8 B in FY 2017.

• Dividend payouts increased 11% on a full-year basis.

• Recently announced a long-term agreement with Air Canada to become their primary credit card issuer (takes effect in 2020).

Key points: 

Toronto Dominion Bank remains solid as we move forward. Both the Canadian and U.S. economies remain in a strong position as we enter 2019. On a macro scale, it can be expected that the company will experience further margin expansion given the rising interest rates and positive credit quality.

The Canadian Retail Business segment experienced 10% earnings growth over FY 2018. This increase was largely driven by higher levels of customer acquisition/retention and growth in business loans and deposits. The U.S. Retail Bank segment experienced even higher earnings which rose 23% over the past year. The favorable environment in the U.S. over the past year goes in hand with the benefits conferred by higher rates and U.S. tax reform.

Pressing forward, the Canadian Bank has made it clear that they’re at the forefront of customer experience. They’ve gained recognition for their digital banking app—earning the top spot in Canada according to App Annie. Furthermore, their recent partnership with Roostify, a digital lending platform provider, will mitigate the hassle and issues for those applying for a mortgage. Overall, this will help to enhance and expand their customer base.

What has the stock done lately?

Over the last month the stock has traded between $55.55 and $55.30. During this time the stock reached a low of $52.92 on November 20th. This is the lowest trading price of the stock in the past year. Since then, the stock is up ~4.5%. This increase is driven by the recent announcement of estimated annual reinvested distributions for TD ETFs as well as entering into a long-term agreement with Air Canada.

Past Year Performance:

TD Bank has decreased 2.47% in value over the past year. However, the stock is coming off a one-year low. Considering their YOY Net Interest Margin and dividend growth, this might be the right time to buy more.


Source: FactSet
My Takeaway:

Toronto Dominion Bank’s stock performance is heavily dependent on interest rates and efficiency improvements. The bank currently has an efficiency ratio of 55%--demonstrating that resources aren’t being converted into revenue as often as they possibly could. Nonetheless, their improvements and partnerships within their digital platform is a winning approach with customers. Increasing interest rates on the horizon for both Canada and the U.S. will continue to drive top-line growth.


Source: FactSet
Sources: 
FactSet
Toronto-Dominion Bank (2018). Q4 Earnings Call Transcript.
Retrieved from FactSet online database.