Toronto-Dominion Bank: Analysts Not Impressed with Eroding Credit

| About: Toronto-Dominion Bank (TD)

While Toronto-Dominion Bank (NYSE:TD) is receiving kudos on the Street for its capital position, analysts remain less than impressed with the bank's eroding credit.

Dundee Securities analyst John Aiken said in a note to clients:

We view TD's results quite positively and believe that its share price will likely benefit in the near term on both an absolute and relative basis on the strength of the quarter. However, we do not believe that TD (or its peers) will be able to fight off the pending additional credit deterioration and earnings will continue to decline.

While TD's Tier 1 capital ratio, now above 10%, is less of a concern now for Mr. Aiken than it was a week ago, he remains worried about the fact that TD's credit provisions increased significantly from the previous quarter. He maintained his "neutral" rating and cut his price target from C$44 to C$41.

Brad Smith, analyst at Blackmont Capital downgraded his rating from "hold" to "sell" after cutting his price target to C$38.

He said in a note to clients:

In addition to confirming the long anticipated acceleration of credit deterioration in the bank's US lending portfolios, the results also evidenced a growing deterioration in both domestic commercial and consumer credit portfolios.

The Blackmont analyst reduced his cash EPS outlook for 2010 to C$4.80 per share and looks for additional capital pressures to unfold in 2009.

Others on the Street are less bearish, including UBS' Peter Rozenberg. Despite the credit loss provision rising earlier than expected, the analyst thinks TD's valuation at 7.4x EPS and 0.86x P/B continues to discount a worst case outlook for PCL’s. He maintained his "buy" rating and cut his price target from C$57 to C$53.