Growing Concerns About The Consumer Overshadowing Toronto-Dominion Heading Into Fiscal Q3 Results

The last three months haven’t been strong ones for Toronto-Dominion Bank (NYSE:TD) (TSX:TD:CA), as the shares of this Big Six bank have lost about 7% of their value since my last update and underperformed the peer group in what has generally been a weak stretch for Canadian banks in general relative to U.S. regional and money center peers.

A weakening outlook for the Canadian economy in general and consumer spending in particular seems to be weighing more heavily on TD, and I wouldn’t be surprised if there were some concerns tied to the extended review process of the bank’s proposed acquisition of First Horizon (FHN). At the same time, though, TD is one of the better-reserved banks in its peer group and still offers the highest asset-sensitivity of its peer group.

Given where it is trading on a P/TBV and P/E basis relative to expected near-term results, I do believe TD Bank is undervalued, but I also believe sentiment is a tough headwind for the shares now given the worries about the Canadian housing market. I do see longer-term value here, but there are other options (particularly U.S. regional banks) where earnings momentum and sentiment seem more in favor of investors over the next six months.

 

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Growing Concerns About The Consumer Overshadowing Toronto-Dominion Heading Into Fiscal Q3 Results