Jefferies Financial Group analysts upgraded the Toronto-Dominion Bank (TD.TO)(TD) to a “buy” Thursday morning and raised the price target, saying the stock’s decline on a streak of bad news now leaves room for upside.
Analyst John Aiken pushed the target for TD up to $90 from $82, noting that the bank has “incurred the largest downward revision to 2025 consensus expectations” compared with other major Canadian banks.
“The step down in TD’s valuation following its fourth quarter earnings release is sufficient to price in all the bad news, in our view,” Aiken wrote in a note to investors. “As the year progresses, we anticipate that its multiple will recover some lost ground and further upside is available should it demonstrate any incremental earnings growth.”
Investors soured on TD this year in part because of a U.S. anti-money-laundering investigation and subsequent penalties, and shares dropped over seven per cent following fourth-quarter earnings a week ago, when the bank suspended medium-term guidance. At the time Aiken characterized that move as “throwing in the towel” and Jefferies lowered its target to $82 from $85 after the earnings call.
TD’s Toronto-listed shares closed Thursday at $76.09, up 0.44 per cent.
Though TD’s recent problems have been front-page calibre, Aiken argued they were “not insurmountable.” Beyond the cost of fines and the reputational hit, the anti-money-laundering issues do not really “disrupt [TD’s] operations at a client level,” Aiken wrote. The imposed asset cap, similarly, “does not necessarily preclude growth in [TD’s] U.S. retail banking segment” and doesn’t apply to other TD assets in the U.S. Moreover, TD’s CEO transition and concurrent strategic review give the bank a chance to start fresh and “should provide a catalyst for multiple recovery as some uncertainty is removed on TD’s outlook.”
TD’s current valuation is also a key factor. The stock now trades at around 9.7x 2025 consensus price-to-earnings ratio (P/E) estimates, well below the average for Canada’s five other major banks, which is above 12.2x P/E. The closest bank is the Bank of Nova Scotia (BNS.TO), which trades at 11.3x P/E.
“[W]e anticipate that several questions will be answered over the next year and believe that TD’s multiple will recover some lost ground,” Aiken writes. “We are already seeing TD’s valuation rebound as investors attempt to pick the bottom.”
John MacFarlane is a senior reporter at Yahoo Finance Canada. Follow him on Twitter @jmacf.
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