On today’s TSX Breakouts report, there are 32 stocks on the positive breakouts list (stocks with positive price momentum), and 25 securities are on the negative breakouts list (stocks with negative price momentum).
A couple of bank stocks have surfaced on the positive breakouts list as their share prices gain momentum. Quarter-to-date, the financials sector in the S&P/TSX composite index is up 4 per cent (price return), outperforming the S&P/TSX composite index, which is down 0.4 per cent. Featured today is Toronto-Dominion Bank (TD-T), whose stock price has rallied the most of all the ‘Big 6’ banks so far this year. Its share price closed at a record high on Thursday.
A brief outline is provided below that may serve as a springboard for further fundamental research.
The company
TD Bank is the fifth largest bank in North America as measured by total assets. In fiscal 2017, the company’s earnings mix was 60 per cent Canadian retail, 26 per cent U.S. retail, 10 per cent wholesale, and 4 per cent TD Ameritrade.
A tailwind for the company, and banks in general, is rising interest rates. Futures are currently implying a 90 per cent probability of a rate hike announcement by the Bank of Canada on Oct. 24. In the U.S., the Federal Reserve is anticipated to hikes rates (100 per cent is the current implied probability) on Sept. 26.
Before the market opened on Aug. 30, the company reported solid third-quarter fiscal 2018 financial results. Here are some of the highlights. Adjusted earnings per share came in at $1.66, ahead of the Street’s expectations of $1.63 and up 10 per cent year-over-year. The Canadian Retail segment reported 7 per cent year-over-year earnings growth. The U.S. Retail segment saw its earnings jump 31 per cent year-over-year. The Common Equity Tier 1 Capital ratio stood at 11.7 per cent at quarter-end. The lower U.S. corporate tax rate benefited the company by $61-million or three cents per share. The company repurchased nearly 20-million shares during the quarter as part of its share buyback program. The share price retreated by half a per cent.
The company trades on both the Toronto Stock Exchange and the New York Stock Exchange under the same ticker, TD.
Dividend policy
The company pays its shareholders a quarterly dividend of 67 cents per share, or $2.68 per share on a yearly basis. This equates to an annualized dividend yield of 3.4 per cent.
The payout ratio was 40 per cent in the third quarter, at the bottom of management’s targeted payout range of between 40 per cent and 50 per cent of adjusted earnings, suggesting there is room for further dividend increases.
Analysts’ recommendations
There are 15 analysts with recommendations on the stock, of which 10 analysts have buy recommendations, four analysts have hold recommendations and one analyst (from Veritas Investment Research) has a ‘sell’ recommendation.
Revised recommendations
Earlier this month, two analysts revised their expectations – both higher.
Mike Rizvanovic, the analyst from Macquarie, tweaked his target price higher to $84 from $83. Anthony Campagna, from EVA Dimensions, upgraded the stock to an “overweight” recommendation from a “hold” recommendation.
Financial forecasts
Analysts are forecasting steady growth for TD. The consensus earnings per share estimate is $6.45 for fiscal 2018, up from $5.54 reported in fiscal 2017. Earnings per share is forecast to climb 7 per cent to $6.92 in fiscal 2019. Management is targeting adjusted earnings per share growth of between 7 per cent and 10 per cent over the medium term.
Earnings forecasts have been rising. For instance, three months ago, the consensus earnings per share estimates were $6.36 for fiscal 2018 and $6.73 for fiscal 2019.
Valuation
The stock is trading at a price-to-earnings (P/E) multiple of 11.5 times the fiscal 2019 consensus estimate, which is marginally above its five-year historical average of 11.3 times. Over the past five years, the peak valuation was approximately 12.5 times. If the multiple were to expand to 12.5 times, this would equate to a share price of over $86.
The consensus one-year target price is $85.75, implying the share price may appreciate nearly 8 per cent over the next 12 months.
Insider transaction activity
In a transaction valued at over $10-million, chairman, chief executive officer and president of TD Securities Bob Dorrance exercised his options and sold the corresponding number of shares (128,944) at a price per share of $79.29 on Sept. 6. His remaining portfolio balance stood at 569,584 shares.
On Sept. 6, Leo Salom, group head, Wealth Management and TD Insurance, exercised his options, receiving 31,520 shares, and sold 29,920 shares at a price per share of $79.29.
In a transaction valued at over $2.8-million, Michael Rhodes, group head – innovation, technology, and shared services, exercised his options and sold the corresponding number of shares (35,824) at a price per share of $78.98 on Sept. 5, eliminating his portfolio’s position.
On Sept. 4, in a trade valued at over $4.4-million, Teri Currie, group head- Canadian Personal Banking, exercised her options and sold the corresponding number of shares (56,064) at a price per share of $78.68, eliminating her account’s holdings.
Chart watch
On Thursday, the stock price closed at a record high. Year-to-date, the stock price has rallied over 8 per cent making TD the top performing “Big 6” bank stock.
In terms of key technical resistance and support levels, the stock has initial resistance level around $80, and after that around $85. On a pullback, there is technical support around $75, near its 200-day moving average (at $74.88). Failing that, there is support around $70.
The Breakouts file is a technical analysis screen intended to identify companies that are technically breaking out. In addition, this report highlights a company’s dividend policy, analysts’ recommendations, financial forecasts, and provides a brief technical analysis for a security to provide readers with more information.
If a stock appears on the positive breakouts list, this indicates positive price momentum, and that a company may be worthwhile for investors to look at the fundamentals in order to determine if the recent price strength is warranted and will continue. If a security appears on the negative breakouts list, this indicates negative price momentum, and may be indicative of either deteriorating fundamentals or perhaps indicates a buying opportunity.
Securities screened are from the S&P/TSX composite index, the S&P/TSX Small Cap index, as well as Canadian small cap stocks outside of these indexes that have a minimum market capitalization of $200-million.
A technical analysis screen does not replace fundamental analysis, but can help identify companies worth having a closer look at.
Jennifer Dowty