,
Mat Litalien
2.67K
Follower
s
Summary
- TD is the highest shorted stock on the TSX.
- Delinquency rates in Canada have jumped 4.1% year-over-year.
- U.S. operations continues to drive growth.
Toronto-Dominion Bank (NYSE:TD) is scheduled to report earnings this coming Friday, August 25th. TD has beaten earnings in 3 of the past 4 quarters and has handily beaten revenue estimates over the same period. Analysts are expecting EPS of C$1.21, a slight increase over the C$1.20 posted in the third quarter of 2015.
High Short position
TD is currently trading near 52 week highs and is up a very respectful 12.74% year-to-date.
However, TD has the distinction of being the highest shorted stock on the TSX and has been relatively range bound since March when it took over top spot on the short list. As of August 15th, there were 83,915,105 shares short, which accounts for approximately 4.5% of the outstanding share float. The number of shares short have remained fairly consistent over this period with immaterial swings on either side. In comparison, Royal Bank of Canada (RY), TD's largest Canadian competitor, is only short 2.2 percent of its float. Should TD beat estimates, we could potentially see some short covering and greater move to the upside should this occur. On the other hand, an earnings miss could put further pressure on the stock.
Delinquency Rates
One of the biggest challenges that Canada's big banks have faced over the past year has been the persistently low oil prices. In its most recent quarterly earnings, provision for credit losses increased 55% year-over-year. The good news is that CIBC analyst Robert Sedran is estimating there will be a decline in loan loss provisions for TD in the coming Quarter. The bad news is that it was just announced that delinquency rates in Canada have increased significantly, especially in oil-producing Provinces, further evidence of the impact of low oil prices on the Canadian economy. Year-over-year, delinquency rates rose 40.3% in Alberta, 22.7% in Saskatchewan and 4.1% nationally. I will be paying close attention to see if TD's loan loss provisions show signs of stabilizing.
U.S. Growth
One of the reasons TD has been able to maintain earnings growth despite the low oil prices and a weakening Canadian economy is the strong performance of its U.S. operations. In the second quarter, U.S. Retail income rose 20% (13% in U.S. dollars) as compared with the second quarter of 2015. Likewise, TD Ameritrade also contributed earnings grown of 27% (13% in U.S. dollars) in the second quarter. Continue growth in the U.S. segment will be imperative to weathering the challenges it faces up north. Should they continue to grow U.S. operations at a meaningful rate, I fully expect TD to continue its earnings growth.
Conclusion
TD has been a cornerstone of my portfolio and has consistently provided me with solid returns and an attractive dividend yield. Over the short term, I will be watching the aforementioned factors and will look to add to my position on the sign of any weakness. Long-term, I am confident TD will be able to navigate the challenged Canadian economy while it sees continued growth in its U.S. operations.
This article was written by
Mat Litalien
2.67K
Follower
s
Two of his favourite stocks, goeasy and Well Health Technologies were up 39% and 341% in 2020. Mat is primarily interested in fundamental analysis, is focused on the long term and his portfolio is composed dividend paying equities and growth stocks. Mat has his MBA and is a founding partner of one of the fastest growing investment services in Canada (StockTrades Premium).
Analyst’s Disclosure: I am/we are long TD. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
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