The Toronto-Dominion Bank - Growth & Income

The Toronto-Dominion Bank (TD) continues to see strong growth in its retail banking business on both sides of the border. Consumer loan volumes have been solid as the global economic recovery gains traction.

Management was cautiously optimistic following the release of its third quarter results as it expects stable, albeit slow, economic growth in Canada. The company also pays an attractive, steady dividend and the valuation picture looks attractive.

About TD Bank

Toronto-Dominion Bank is the second largest bank in Canada and operates more than 1,000 branches in the eastern United States under the name TD Bank.

The company also operates several financial-related subsidiaries and has a 45% stake in discount brokerage firm TD Ameritrade.

Third Quarter Results

TD Bank recently reported third quarter earnings per share of $1.42, which beat the Zacks Consensus Estimate by 3 cents.

The company saw total revenue decrease 0.6% over the same quarter in 2009. Net interest income (which accounts for 61% of total revenue) improved 3.1%, while non-interest income (the other 39%) was down 5.8% due to lower wholesale banking revenues.

TD reported a 31% decline in provisions for credit losses due to improving credit trends.

Adjusted net income was essentially flat year-over-year.

Outlook

Analysts have been revising their estimates higher recently. The Zacks Consensus Estimate for 2010 is now $5.64 per share, equating to 9% annual growth.

The 2011 estimate is currently $6.41, corresponding to 14% EPS growth.

Dividend

TD Bank has raised its dividend at a compound annual growth rate of 9.0% since 2000. It yields an attractive 3.3%, well above the industry average of 2.0%.

Valuation

Valuation is cheap, with the stock trading at 11.4x forward earnings, a discount to the industry average of 13.3x. Its PEG ratio is an attractive 1.0.

The stock also trades at 1.7x book value, a slight premium to the industry average of 1.3x.

The Chart

After a strong run up in the share price earlier in the year, the stock has generally traded between $65 and $75 per share.

It is a Zacks #2 Rank (Buy) stock.

Todd Bunton is the Growth & Income Stock Strategist for Zacks.com.

 
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