AGU Fundamental Research Investment Analysis, Agrium Inc.

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Toronto Dominion Bank (TD)

The Razor’s Edge

2-Year Price History

Recent Price
(3/4/2009 10:25 AM) -1.6%
52-Week Price
$25.86 – $72.50
Market Capitalization
$22.2 Billion
Dividend Yield
Most Recent Dividend

About Toronto Dominion Bank

Toronto Dominion Bank is considered to operate in the Financial sector. They specifically operate in the Money Center Banks business segment contained within the Banking industry.

The Bank and its subsidiaries provide Canadian Personal and Commercial Banking, U.S. Personal and Commercial Banking, Wealth Management, Insurance and Wholesale Banking.

Ockham’s Rating

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TD Revenue

As a value investing shop, we are interested in seeing how TD’s revenues measure up against past performances. One easily understandable way of doing that is to compare Price to Sales per share levels over a given time frame. Assuming it is available, Ockham prefers to look at ten years of history (for this stock there are 10 years of history available) and we weigh recent years more heavily. This allows us to find weighted average historical high and low Price to Sales ratios, which give us a better idea of the stock’s current underlying value. Using this method, we have established a high range for Price to Sales of 1.02x and the low end of the range at 0.69x.

With respect to these historically rational metrics, notice that the current Price to Sales per share ratio for TD of 1.10x is well above its historical average. This means that TD looks relatively expensive compared to its historical Price to Sales average, and thus it is more difficult to believe that there is significant price appreciation potential. In order for the stock to become more attractive, we would like to see a decline in the Price to Sales ratio of 28% just to return TD to its historical average.

TD Cash Earnings

Cash Earnings is always one of the most important factors to review for a company and, more importantly, an investment in a stock. TD is significantly below its historical average multiple of Cash Earnings. Looking at the last 10 years we can get a good understanding of what investors have grown to expect from TD. For example, TD’s Cash Earnings ratio per share has fluctuated between 5.54 and 8.30 over this historical timeframe. This range is based upon a proprietary weighted methodology at Ockham, but can clearly show an investor where TD is with respect to prior business periods.

So with TD’s current price (latest close of $29.34) and most recent level of Cash Earnings reported, we see significant opportunity from a value perspective. At its current price level, TD is 32% below its average level of Price to Cash Earnings on a historical basis. This means that investors were willing to pay for a much higher stock price than currently for the same level of Cash in the past, on a relative basis. There are a couple of important things to remember, however. First, value doesn’t exist in a vacuum. So if the market doesn’t recognize this value, even a great disparity in Price to Cash Earnings cannot force an immediate stock price reaction. Second, patience is key when looking at securities that have reached these levels of Price to Cash Earnings versus their historical norms. So be patient with TD.

TD Dividends

A strong dividend payment history is looked upon as a favorable characteristic on a company’s future and potentially can receive a positive Ockham rating. That being said, we don’t require dividend payments for company’s whose management has elected to forgo them entirely.

When reviewing dividend yields for TD, we compare the historic high and low levels over the past, which is similar to our evaluation of Sales and Cash Earnings per share. Paying a dividend is not necessary for any company, but changes in dividend often can lend clues as to the health of the business. A rising dividend is a strong sign for an established company, as it reflects management’s confidence in the company. TD’s estimated annual dividend is $2.01 resulting in a current dividend yield of 6.85%. The highest dividend yield from TD over recent history was 7.77% while the lowest dividend yield was 1.69%. If you are looking for some “bang for your buck” then a dividend yield of 44.82% above the historical median should be enticing. TD receives a positive boost in our view because as you know, equity at its core is simply a claim on future dividends.

Peer Comparison


Toronto Dominion Bank Industry Grouping

Company Ticker Market Cap (Ml) Latest
Price/Cash Earnings Price/Sales 5-Yr. Rev.
Growth Rate
Avg. ROE.
Current 10-Yr. Range* Current 10-Yr. Range*
Peer Company Averages (not incuding TD) 3.87 5.72 » 31.40 0.90 0.79 » 3.13 12.21% 19.49%
*10 year range does not include current year values
UBS AG Ordinary Shares UBS $24.5 Billion $8.35 4.31 7.13 » 25.25 0.42 0.60 » 3.21 22.52% 19.48%
Banco Bilbao Vizcaya Argentaria SA BBV $24.1 Billion $6.43 2.59 3.33 » 25.20 0.81 0.89 » 3.05 17.65% 21.16%
Credit Suisse Group ADS CS $22.3 Billion $21.75 2.31 2.99 » 54.10 0.73 0.22 » 2.08 4.13% 14.78%
Toronto Dominion Bank TD $22.2 Billion $27.46 4.75 8.24 » 30.50 1.10 0.95 » 2.82 12.81% 17.82%
US Bancorp USB $22.1 Billion $12.58 4.97 7.23 » 29.94 1.51 1.16 » 4.77 5.66% 21.62%
The Bank of Nova Scotia BNS $20.8 Billion $20.93 5.17 7.91 » 22.50 1.01 1.10 » 2.56 11.08% 20.42%
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Key Fundamentals

TD – Toronto Dominion Bank Fundamentals
Price (3/4/2009 10:25 AM) $27.01
Volume (3/4/2009 10:25 AM) 349,430
Last Close Price $27.46
10 Day Average Volume 3.1 Million
13 Week Price Range $25.86 – $39.61
52 Week Price Range $25.86 – $72.50
LTM Revenue $21.2 Billion
Shares Outstanding (10/2008) 810.1 Million
Market Capitalization $22.2 Billion
Shares Held By Institutions 493.0 Million
Institutional Holders 440
% Shares Held By Institutions 58.20%
Earnings Per Share (EPS) $4.05
P/E Ratio 7.00
Book Value Per Share $30.59
Gross Margin n/a%
Quarterly Dividend 2.01
Dividend Yield 7.30%
Beta 1.21
Fiscal Year Ends October