Karen Thomas, MSc, CFA
·4 min read
Written by Karen Thomas, MSc, CFA at The Motley Fool Canada
As one of Canada’s top banks, Toronto-Dominion Bank (TSX:TD) has earned its spot. Its strong history, diversified business, and risk-controlled business model have made TD the resilient bank that it is today. But is TD Bank stock a buy after its most recent earnings were plagued with rising provisions for loan losses and restructuring charges?
TD Bank stock remains firm as Q1 results beat expectations
In the last five years, TD Bank’s stock price has risen 8.4%. This might come as a surprise to those of us who have watched the stock tumble 25% from 2022 highs. But the stock has performed reasonably well over the medium term.
It’s very interesting to note that in the five years ended 2023, TD’s revenue has doubled due largely to its acquisition of SG Cowan, and net income has fallen more than 10%. TD’s latest result, Q1 2024, showed more of the same trends that we have already been seeing in 2023. For example, revenue increased 5% due to higher fee income and the acquisition of Cowan. Also, expenses were up 12%, and TD’s earnings per share (EPS) declined 10% to $2. But the bottom-line result beat analyst expectations, and that is a big positive for the stock.
While we can expect slowing growth due to the macro environment, TD Bank continues to see operating momentum, as seen in its loan growth numbers. For example, Canadian business banking loans increased 8%, and U.S. retail loans increased 9%.
Provisions for credit losses (PCLs) rise sharply
One of the big negatives in TD Bank’s result was the sharp increase in its PCLs, which came in at $1 billion. This was higher than analyst expectations and an increase from $690 million a year ago. The bank commented on the credit environment today, comparing it to pre-pandemic levels, as rising unemployment and elevated interest rates have challenged consumers. However, we can expect that the quality of TD’s loan portfolio will shelter it somewhat from this negative trend.
So far, TD Bank seems to be weathering these difficulties well. This can be evidenced by the strong loan growth in the quarter. It can also be seen in the bank’s success in the wealth management business, and in its capital markets business, which is benefitting from the Cowan acquisition.
Restructuring charges to bring future savings
In the quarter, TD Bank recorded restructuring charges of $291 million. This was the result of severance charges, real estate optimization, and asset impairments, to name a few. We can expect more restructuring charges to come as the bank continues to work on improving efficiencies. When all is said and done, we can expect savings of $400 million pre-tax in 2024, and an annual run rate savings of $600 million.
TD stock’s valuation remains attractive
In assessing TD Bank stock, I’m maintaining a long-term perspective. TD Bank has decades of experience and has survived and thrived, despite many bad moments. I think that this time will be the same. Although growth will likely slow and the macro environment will remain tough, TD Bank remains one of the best stocks to buy now for its strong long-term investment case.
The post Best Stock to Buy Now: Is TD Bank of Canada Stock a Buy After Earnings? appeared first on The Motley Fool Canada.
Should you invest $1,000 in TD Bank right now?
Before you buy stock in TD Bank, consider this:
The Motley Fool Stock Advisor Canada analyst team just identified what they believe are the 10 best stocks for investors to buy now… and TD Bank wasn’t one of them. The 10 stocks that made the cut could potentially produce monster returns in the coming years.
Consider MercadoLibre, which we first recommended on January 8, 2014 ... if you invested $1,000 in the “eBay of Latin America” at the time of our recommendation, you’d have $17,988!*
Stock Advisor Canada provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month – one from Canada and one from the U.S. The Stock Advisor Canada service has outperformed the return of S&P/TSX Composite Index by 35 percentage points since 2013*.
See the 10 stocks * Returns as of 1/24/24
More reading
Can You Guess the 10 Most Popular Canadian Stocks? (If You Own Them, You Might Be Losing Out.)
How to Build a Bulletproof Monthly Passive-Income Portfolio in 2024 With Just $25,000
Fool contributor Karen Thomas has a position in Toronto-Dominion Bank. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
2024
