Stock Up Sale
Shares of Toronto-Dominion Bank (TSX:TD) are trading almost 30% below all-time highs as investors weathered a turbulent period in 2024. The Canadian banking giant pleaded guilty and was fined US$3 billion by the U.S. authorities over anti-money laundering accusations.
As TD Bank wrestles with regulatory challenges and an upcoming leadership transition this year, investors want to know if the TSX stock can regain its footing and stage a comeback over the next 12 months.
Is TD Bank a good stock to own?
In fiscal Q4 2024 (ended in October), TD reported revenue growth of 12% year over year while maintaining a rock-solid CET1 (common equity Tier1 ratio) of 13.1%.
But here’s the plot twist: TD has hit the reset button on its strategy by suspending its medium-term targets. It disclosed plans for a major strategic review, details of which will be revealed by the end of 2025.
TD announced that a new CEO, Raymond Chun, will take over the bank in the first half of 2025, and this leadership transition is viewed as a potential catalyst for the company’s turnaround.
TD emphasized the AML cleanup isn’t a quick fix and expects the saga to stretch into 2027. Further, it must restructure U.S. operations and keep assets under a regulatory cap by March 2025. The bank’s focus on risk controls is expected to increase expenses by 5% to 7% in fiscal 2025.
In 2024, TD’s expenses were up 11% year over year, driven by investments in risk controls and infrastructure.
TD’s Canadian business performed well in Q4 as loan volumes and deposits grew by 5% year over year. However, higher credit provisions and expenses meant net income in the U.S. was down 13% compared to the year-ago period.
Is the TSX stock undervalued?
TD Bank remains well capitalized, and the ongoing drawdown in share prices has meant the stock currently offers shareholders a tasty dividend yield of 5.5%.
While the banking sector is cyclical, TD has consistently raised its dividend payouts over the past two decades. TD Bank’s dividend payment has increased to $4.20 per share in January 2025, up from $0.25 per share in 1996.
The Canadian banking industry is highly regulated, forcing major players to have a conservative lending approach, allowing them to weather economic downturns and maintain dividend payouts relatively easily.
Moreover, TD stock trades at a discount compared to peers, allowing you to buy the dip and benefit from outsized gains when market sentiment improves.
Regulatory restrictions on expansion in the U.S. will hamper the company’s near-term growth. However, these restrictions should compel TD to focus on other international markets, such as Latin America.
Analysts tracking TD Bank expect adjusted earnings to expand from $7.81 per share in fiscal 2024 (ended in October) to $8.41 in fiscal 2026. Today, TD Bank stock trades at a trailing price-to-earnings multiple of 10 times.
If the TSX bank stock can complete a successful turnaround and trades at 12 times trailing earnings, it should trade around $100 per share in early 2027, indicating an upside potential of over 30% from current levels.
