Strong earnings and controlled spending will keep Toronto Dominion Bank's (TD) margins strong in the face of economic headwinds and a low interest rate environment.
For the three month period ending on January 31st, TD Bank reported a revenue growth of 3.9% compared to a year ago. TD Bank reported a revenue of $5.64 billion in Q1 compared to $5.46 billion last year. North American retail businesses were a leading factor in the revenue growth with $1.6 billion in adjusted earnings. The North American retail businesses were supported by TDs focus on customer satisfaction.
According to the Wall Street Journal, TD President and CEO, Ed Clark, states "These results again showcase how our "customer-focused strategy" enables us to grow during tough times."
Durning the TD Q1 conference Bharat Masrani Group head, U.S. P&C Banking, supported Clark's statements by saying, "It's getting one mortgage at a time, one customer at a time, one deposit at a time and one credit card at a time. And that's what it takes in our business, and we continue to work hard to generate that growth. And that's what's happening in our business in the U.S."
TD earned a first-quarter profit of $1.48 billion or $1.55 per share, down from $1.56 billion, or $1.67 per share. Even with profits down in Q1 compared to last year, the bank reported a dividend increase of 5.6%, from $.68 to $.72 per share. The dividend increase demonstrates the banks confidence in maintaining it's current growth and sustainable profit margins in this low interest rate environment.
CEO Clark was also reported as saying, "we continue to maintain that we like the seven to 10 percent target rate for our earnings growth, but as I indicated last quarter, we're going to have to work hard in this environment to get there."
TD bank sees many challenges going forward. With significant uncertainty remaining in the market, particularly as it relates to Europe, TD banks "customer-focused strategy" will help growth and sustain margins but the bank does not expect to be insulated from any significant market events. To help alleviate the impact of any such events, TD continues to develop their key franchise businesses and actively manage their expenses.
Another challenge going forward for TD is the continued low interest rate environment. The Wall Street Journal reports "Tim Hockey, Group Head, Canadian Banking states, "low interest rates continue to present a challenge". In 2012 there is no predicted rise in the interest rates with Bank of Montreal stating "it does not expect interest rates to rise again until the early part of 2013" (The Canadian Free Press). This sustained low interest rate environment will continue to present challenges for the bank.
In spite of a low interest rate environment and future economic headwinds, TD bank has been able to grow its revenues and maintain solid profit margins. The bank's "customer-focused strategy" and attention to spending has analysts seeing the bank's profit margins between 25% to 29% for the foreseeable future.
1) Estimated sales: $23.81 billion
2) Estimated profit margin: 26.2%
3) Profit of $6.23 billion
4) Shares outstanding = 902.96 million
5) EPS = $6.90
6) Forward P/E = 12.78
TD - Toronto Dominion Bank Stock Price Target for 2012 = $88.18 USD
|Target||CIBC World Markets||$91.00 « $88.00||03/02/12|
|Target||Macquarie Research||Outperform||$93.00 « $91.00||03/02/12|
|Target||National Bank Financial||Outperform||$94.00 « $92.00||03/02/12|
|Target||BMO Capital Markets||Outperform||$92.00 « $87.50||03/02/12|
|Target||UBS Securities||Buy||$91.00 « $87.00||03/02/12|
|Maintain||CIBC World Markets||Sector Outperform||03/02/12|
|Target||Scotia Capital||Sector Outperform||$100.00 « $93.00||03/02/12|
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.