Toronto-Dominion Keeps Riding on Canada's Success

On Thursday, Toronto-Dominion (NYSE: TD  ) will release its latest quarterly results. The key to making smart investment decisions on stocks reporting earnings is to anticipate how they'll do before they announce results, leaving you fully prepared to respond quickly to whatever inevitable surprises arise. That way, you'll be less likely to make an uninformed, kneejerk reaction to news that turns out to be exactly the wrong move.

Even as U.S. banks were struggling during the mortgage meltdown in 2008, Toronto-Dominion and its Canadian peers held up relatively well. But the persistent strength in Canada's housing market has led to fears that it might be headed for a bubble of its own. Let's take an early look at what's been happening with Toronto-Dominion over the past quarter and what we're likely to see in its quarterly report.

Stats on Toronto-Dominion

Analyst EPS Estimate


Change From Year-Ago EPS


Revenue Estimate

$6.07 billion

Change From Year-Ago Revenue


Earnings Beats in Past 4 Quarters


Source: Yahoo! Finance.

How can Toronto-Dominion keep up the pace this quarter?
In recent months, analysts have kept their views relatively steady on Toronto-Dominion's earnings, keeping their estimates for the just-ended quarter stable while adding a penny to their full-year fiscal 2013 consensus. The stock hasn't moved much either, falling just 1% since mid-February.

For investors used to the U.S. banking system, Canada has a lot of differences that have promoted stability in the past. For one thing, Canada only has 25 different domestic banks, and six of them in particular qualify as being domestic systemically important financial institutions, including Toronto-Dominion. As a result, TD and its peers have to maintain an extra 1-percentage-point buffer over the 7% capital ratio that the Basel III standards require.

But right now, Canadian banks are actually more leveraged than many of their U.S. peers, which have reined in their leverage levels after the financial crisis. That, combined with soaring housing values in many parts of Canada, led one credit-rating agency back in January to downgrade not only Toronto-Dominion but also Bank of Nova Scotia (NYSE: BNS  ) , Bank of Montreal (NYSE: BMO  ) , and three other major Canadian banks.

Even with the downgrade, Toronto-Dominion hasn't hesitated to expand its exposure to U.S. financial assets. In December, the company bought U.S. asset management company Epoch Investment Partners for about $700 million, tapping into the trend toward building up investment and wealth-management services to add to traditional banking offerings. In addition, in March, Target (NYSE: TGT  ) completed its sale of its credit card portfolio to Toronto-Dominion's TD Bank subsidiary, a $5.7 billion acquisition that will boost the bank's status as a card-servicing company.

In Toronto-Dominion's report, be sure to look closely at the bank's creditworthiness while also keeping an eye on its expansion efforts to the south. As the U.S. economy strengthens and Canada's resource-based economy starts to struggle, Toronto-Dominion may end up earning more from its moves in the U.S. than in its home market.

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9/29/2016 9:35 AM
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