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