On Friday, Scotiabank (TSX:BNS) revised its stance on Toronto-Dominion Bank (TSX:TD:CN) (NYSE: TD), downgrading the stock from Sector Outperform to Sector Perform. Accompanying this change, the firm also reduced its price target to C$81.00 from the previous C$98.00. The stock, currently trading near its 52-week low with a market capitalization of $92.19 billion, shows signs of being slightly undervalued according to InvestingPro analysis.
The downgrade comes in the wake of Toronto-Dominion Bank's recent earnings per share (EPS) miss, which was further compounded by the bank's decision to suspend its medium-term financial targets. With a P/E ratio of 15.74 and an attractive dividend yield of 5.65%, the bank maintains its status as a prominent dividend payer, having maintained payments for 52 consecutive years.
Scotiabank's analyst pointed out that while the challenges of growth in 2025 are understandable, the lack of updated guidance until the second half of 2025 is concerning for investors. This is especially significant considering the bank's current situation under a U.S. consent order.
The analyst noted the contradiction between the management's bullish statements about the bank's various businesses during the Q4 call and the absence of immediate guidance to support these positive outlooks. The need for evidence to substantiate the growth outlook was emphasized as crucial for investor confidence. InvestingPro subscribers can access additional insights, including 8 more ProTips and a comprehensive Pro Research Report that provides deep-dive analysis of TD Bank's financial health and future prospects.
Previously, Scotiabank had supported Toronto-Dominion Bank's stock, believing that the market was undervaluing it despite the bank's challenges. However, the analyst now expresses doubt that the market's valuation discount on the bank's shares will narrow significantly without updated guidance to shed light on the bank's earnings potential and strategic direction under new leadership. The stock has experienced a challenging year, with a YTD return of -14.12%.
In other recent news, Toronto-Dominion Bank (TD Bank) has seen significant developments. The bank reported a fall in its Q4 earnings, with adjusted earnings per share of C$1.72, below the consensus estimate of C$1.83. However, TD Bank surpassed revenue expectations, posting C$15.51 billion, a 33% rise year-over-year, exceeding the projected C$12.71 billion.
The bank's adjusted net income decreased by 8% year-over-year to C$3.21 billion, due to increased provisions for credit losses and higher expenses. Despite these challenges, the Canadian Personal and Commercial Banking segment saw a 9% increase in net income to C$1.82 billion. Conversely, the U.S. Retail Bank segment experienced a 12% decline in adjusted net income to US$689 million.
In addition, Desjardins has downgraded TD Bank's stock to Hold from Buy, adjusting its price target to C$80 from C$88, following a performance review. The analyst from Desjardins expects the bank's stock to remain within a certain trading range due to potential volatility and the pending strategic review. TD Bank has indicated that earnings growth may be challenging in fiscal 2025 due to a "transition year" and investments in risk management and control infrastructure.
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