Scotia Capital, 5 March 2010
• TD reported an increase of 26% YOY to operating earnings of $1.60 per share, above expectations. Earnings were better than expected due to strong results from Canadian P&C and Wholesale Banking with credit quality stable. ROE was 15.5% with RRWA very high at 2.88%.
Implications
• Canadian P&C earnings were a record, increasing 23% YOY with revenue growth of 11% aided by improved NIM and loan growth. Wholesale earnings were very strong; flat sequentially, and well above sustainable levels, in our opinion. Wealth Management earnings were solid with U.S. P&C weak.
Recommendation
• We are increasing our 2010 and 2011 earnings estimates to $5.95 per share and $6.60 per share from $5.65 per share and $6.50 per share, respectively, due to stronger-than-expected earnings this quarter and strong operating leverage in domestic retail. We are increasing our 12-month share price target to $85 from $80.
• We are upgrading TD to a 1-Sector Outperform from a 2-Sector Perform based on superior positive earnings leverage to higher interest rates due to large core retail deposit base, strong retail franchise, and manageable U.S. credit risk.
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• TD reported an increase of 26% YOY to operating earnings of $1.60 per share, above expectations. Earnings were better than expected due to strong results from Canadian P&C and Wholesale Banking with credit quality stable. ROE was 15.5% with RRWA very high at 2.88%.
Implications
• Canadian P&C earnings were a record, increasing 23% YOY with revenue growth of 11% aided by improved NIM and loan growth. Wholesale earnings were very strong; flat sequentially, and well above sustainable levels, in our opinion. Wealth Management earnings were solid with U.S. P&C weak.
Recommendation
• We are increasing our 2010 and 2011 earnings estimates to $5.95 per share and $6.60 per share from $5.65 per share and $6.50 per share, respectively, due to stronger-than-expected earnings this quarter and strong operating leverage in domestic retail. We are increasing our 12-month share price target to $85 from $80.
• We are upgrading TD to a 1-Sector Outperform from a 2-Sector Perform based on superior positive earnings leverage to higher interest rates due to large core retail deposit base, strong retail franchise, and manageable U.S. credit risk.
