RBC Capital says 'TD stock undervalued' despite earnings noise and expense concerns

On Friday, RBC Capital Markets adjusted its price target for Toronto-Dominion Bank (TD:CN) (NYSE: TD), decreasing it to C$88.00 from the previous C$89.00. Despite the change, the firm maintained its Outperform rating on the stock.

The adjustment followed the bank's recent earnings report, which included some irregularities due to weather-related insurance claims. Excluding these claims, the bank's earnings power was estimated to be closer to $2.16 per share, although there were concerns about rising expenses. RBC Capital also noted that Toronto-Dominion Bank's credit quality appeared stable.

The bank is expected to set aside a US$1 billion provision in Q4/24 related to anti-money laundering (AML) issues. However, a resolution to these AML concerns is believed to be imminent. While there is no anticipation of a severe asset cap being imposed on TD, the bank may face increased expenses and potential growth challenges, particularly in the U.S. market.

RBC Capital's commentary highlighted that current valuations might overly reflect pessimism regarding the bank's earnings potential and capital situation. Despite the slight reduction in the price target, the firm's outlook on Toronto-Dominion Bank remains positive.

In other recent news, Toronto-Dominion Bank (TD Bank) has been making significant moves. The bank has reported a material change to the U.S. Securities and Exchange Commission (SEC), a move that often signifies substantial corporate events.

Simultaneously, TD Bank is preparing for a resolution involving both monetary and non-monetary penalties related to ongoing civil and criminal investigations into its anti-money laundering practices. This has led to an additional provision of $2.6 billion within its third-quarter financial results.

Additionally, TD Bank has sold 40.5 million shares of Charles Schwab (NYSE:SCHW), reducing its stake from 12.3% to 10.1%. The bank's Chief Compliance Officer, Monica Kowal, has also left the institution, with Erin Morrow stepping in as her replacement.

TD Bank has invested over $500 million in enhancing its regulatory program, including recruitment of anti-money laundering professionals and bringing in executives from other institutions.

UBS initiated coverage on Toronto-Dominion Bank stock with a Neutral rating, indicating potential impacts on the bank's performance due to regulatory concerns and a challenging macroeconomic environment.

TD Securities, along with several Wall Street firms, has agreed to pay a collective sum exceeding $470 million in settlements with U.S. regulators for violations of recordkeeping rules. These are the latest developments involving TD Bank.

InvestingPro Insights

As Toronto-Dominion Bank (TD:CN) (NYSE: TD) navigates through challenges and earnings revisions, InvestingPro data and insights provide a deeper perspective on the bank's financial health. The bank's market capitalization stands at a robust $102.32 billion, and it holds a price-to-earnings (P/E) ratio of 10.98 based on the last twelve months as of Q2 2024, indicating a potentially more attractive valuation compared to the industry average. Additionally, Toronto-Dominion Bank has demonstrated a commitment to shareholder returns, with a notable dividend yield of 5.12% and a history of raising its dividend for 14 consecutive years, showcasing the bank's confidence in its financial stability and future earnings potential.

InvestingPro Tips further highlight that analysts have revised their earnings upwards for the upcoming period, suggesting optimism about the bank's earnings trajectory. Moreover, the bank has maintained dividend payments for an impressive 52 consecutive years, reinforcing its reputation as a reliable dividend payer. However, it's important to note that the bank is quickly burning through cash and suffers from weak gross profit margins, which could be areas of concern for investors. For those seeking a comprehensive analysis, InvestingPro offers additional tips on Toronto-Dominion Bank, providing a more nuanced understanding of its investment potential.

Investors may find these insights particularly relevant as they weigh RBC Capital Markets' recent price target adjustment and the bank's ongoing efforts to address AML issues and other operational challenges. With a keen eye on the bank's financial metrics and analyst sentiment, informed decisions can be made regarding Toronto-Dominion Bank's stock.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.