Toronto-Dominion Bank Valuation – Initial Coverage $TSE:TD

Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 10 Stocks for Using A Benjamin Graham Value Investing Strategy – March 2017.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a stock analysis showing a specific look at how Toronto-Dominion Bank (TSE:TD) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Toronto-Dominion Bank (the Bank) is a Canada-based bank, which operates in the North America. It is an online financial services firm, with over 10.2 million online and mobile customers. Its segments include Canadian Retail, U.S. Retail, Wholesale Banking and Corporate. The Canadian Retail segment provides a range of financial products and services to customers in the Canadian personal and commercial banking businesses. The U.S. Retail segment consists of its retail and commercial banking operations operating under the brand TD Bank, and wealth management services in the United States. The Wholesale Banking segment provides a range of capital markets, investment banking, and corporate banking products and services, including underwriting and distribution of new debt and equity issues, providing advice on strategic acquisitions and divestitures, funding and investment needs of its clients. The Corporate segment provides centralized advice and counsel to its businesses.

TD Chart

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Downloadable PDF version of this valuation:

ModernGraham Valuation of TSE-TD – April 2017

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass all 6 of the following tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $123,496,003,605 Pass
2. Earnings Stability Positive EPS for 10 years prior Pass
3. Dividend Record Dividend Payments for 10 years prior Pass
4. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 110.12% Pass
5. Moderate PEmg Ratio PEmg < 20 14.35 Pass
6. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 1.72 Pass
Enterprising Investor; must pass all 3 of the following tests, or be suitable for the Defensive Investor.
1. Earnings Stability Positive EPS for 5 years prior Pass
2. Dividend Record Currently Pays Dividend Pass
3. Earnings Growth EPSmg greater than 5 years ago Pass

Stage 2: Determination of Intrinsic Value

EPSmg $4.62
MG Growth Estimate 7.00%
MG Value $103.85
Opinion Undervalued
MG Grade B-
MG Value based on 3% Growth $66.92
MG Value based on 0% Growth $39.23
Market Implied Growth Rate 2.92%
Current Price $66.22
% of Intrinsic Value 63.76%

Toronto-Dominion Bank qualifies for both the Defensive Investor and the Enterprising Investor. In fact, the company meets all of the requirements of both investor types, a rare accomplishment indicative of the company’s strong financial position . The Enterprising Investor has no initial concerns. As a result, all value investors following the ModernGraham approach should feel comfortable proceeding with the analysis.

As for a valuation, the company appears to be Undervalued after growing its EPSmg (normalized earnings) from $3.15 in 2013 to an estimated $4.62 for 2017. This level of demonstrated earnings growth outpaces the market’s implied estimate of 2.92% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on Benjamin Graham’s formula, returns an estimate of intrinsic value above the price.

At the time of valuation, further research into Toronto-Dominion Bank revealed the company was trading above its Graham Number of $65.31. The company pays a dividend of $2.2 per share, for a yield of 3.3%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 14.35, which was below the industry average of 20.84, which by some methods of valuation makes it one of the most undervalued stocks in its industry.

Toronto-Dominion Bank performs fairly well in the ModernGraham grading system, scoring a B-.

Stage 3: Information for Further Research

Graham Number $65.31
PEmg 14.35
PB Ratio 1.72
Dividend Yield 3.32%
TTM Dividend $2.20
Number of Consecutive Years of Dividend Growth 7


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Most Recent Balance Sheet Figures

Balance Sheet Information 1/1/2017
Long-Term Debt & Capital Lease Obligation $8,394,000,000
Total Assets $1,186,883,000,000
Intangible Assets $18,883,000,000
Total Liabilities $1,115,203,000,000
Shares Outstanding (Diluted Average) 1,860,300,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $5.24
Oct2016 $4.67
Oct2015 $4.21
Oct2014 $4.14
Oct2013 $3.44
Oct2012 $3.38
Oct2011 $3.22
Oct2010 $2.55
Oct2009 $1.74
Oct2008 $2.44
Oct2007 $2.74
Oct2006 $3.17
Oct2005 $1.60
Oct2004 $1.70
Oct2003 $0.76
Oct2002 -$0.13
Oct2001 $1.04
Oct2000 $0.78
Oct1999 $2.45
Oct1998 $0.91
Oct1997 $0.89

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $4.62
Oct2016 $4.19
Oct2015 $3.86
Oct2014 $3.57
Oct2013 $3.15
Oct2012 $2.89
Oct2011 $2.61
Oct2010 $2.38
Oct2009 $2.31
Oct2008 $2.50
Oct2007 $2.36
Oct2006 $1.91
Oct2005 $1.19
Oct2004 $0.93
Oct2003 $0.69
Oct2002 $0.78
Oct2001 $1.22

Recommended Reading:

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The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

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