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.


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