Editor's Note: All images are courtesy unsplash.com and AP Images.
Key Takeaways for TD Bank Stock:
- Investors are paying attention to TD’s performance as it navigates economic uncertainty related to consumer debt levels and the Canadian domestic mortgage market, however, it is less exposed to the latter compared to other Big 6 Canadian bank peers.
- Expenses are rising for TD with the inflationary environment, but mortgages will begin to renew at higher rates and the bank’s credit card acquisitions will be a higher-yielding business once the new relationships mature.
- Earnings have declined at TD recently, but recent acquisitions were expected to contribute to higher expenses and non-bank assets will shine in their own time.
Andrew Willis: This year, Canadians were tuned in to a bit of a competition happening in the background of a financial sector in flux. As interest rates began to bite in the domestic real estate market, TD Bank TD got the most clicks as it positioned itself to give Royal Bank a run for its money.
In second place for business banking and first place for credit card issuance, we look for expansion of net interest margins at TD next year, and stability in 2025 as we expect lower-rate mortgages to roll over at higher rates. These developments should help with any mortgage delinquencies, although TD has one of the smaller exposures to the domestic real estate market – while RBC has one of the largest…
In the short term, like most households, Canadian banks are having to deal with higher expenses. Not to mention bank investors, who have seen earnings decline 16% year over year for TD Stock. But we don’t see these trends manifesting into a deal breaker for the Canadian banking sector. Equity analyst Michael Miller explains that while there are uncertainties related to consumer debt levels and the mortgage market, we view them as a threat to future growth and not as an existential risk.
TD Bank’s Diverse Businesses May Differentiate it in a Downturn
With a better deposit mix and exposure to moaty nonbank businesses, TD may take the spotlight again next year as its positions play out in a potential downturn. And don’t forget that that capital allocation, which we rate as Exemplary, includes a decent dividend to keep you tuned in.
For Morningstar, I’m Andrew Willis.
TD Bank Bulls Say
- The profitability of its Canadian bank segment should continue for some time, providing a solid foundation for strong returns for Toronto-Dominion.
- TD is one of the top issuers of cards in Canada, which tends to be a more profitable business if managed appropriately.
- The bank's recent acquisition of Cowen should provide a unique boost for its U.S. capital markets operations and for revenue and net income growth over the next several years.
TD Bank Bears Say
- The bank's higher U.S. exposure and higher rate sensitivity is turning into a double-edged sword, as higher rates are now putting more pressure on earnings, particularly within the U.S.
- The Canadian housing market is heating up again, potentially increasing risks for the economy and the banking sector. Credit losses could rise in the future, and earnings growth is likely to be pressured for one or more years going forward.
- Toronto-Dominion will have to look outside Canada for additional growth opportunities, which could weigh on overall returns.
Image credits:
1- Associated Press
2- Tierra Mallorca on Unsplash
3- Associated Press
4- Associated Press
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