Two major Canadian bank stocks, The Toronto-Dominion Bank TD and Royal Bank of Canada RY, headquartered in Toronto, have market capitalization of $80.3 billion and $90.8 billion, respectively. Both of these are part of the ‘Foreign Banks’ industry, which has a Zacks Industry Rank #62 (top 23%).
These two banks are listed on both the Toronto Stock Exchange and NYSE. On NYSE, Toronto-Dominion was up nearly 11%, while Royal Bank of Canada jumped over 14%, year-to date. While the business of both the banks is almost similar, let’s dig deeper into to the financials, before deciding which one is a better investment option.
Toronto-Dominion – founded in 1855 – provides various retail and commercial banking products and services in Canada, the U.S. and internationally. The company operates through Canadian Retail, U.S. Retail, and Wholesale Banking segments.
Toronto-Dominion has a beta of 0.98, indicating it is slightly less volatile than the market. Further, the company has a trailing 12-month Return on Equity (ROE) of 13.3%, compared with the industry average of 10.6%. This shows it reinvests its earnings more efficiently.
Further, Toronto-Dominion stock looks a little bit overvalued with respect to its Price-to-Earnings (P/E) and Price-to-Book (P/B) ratios. It has a P/E ratio of 11.69, compared with the industry average of 10.95. Also, the company’s P/B ratio of 1.55 is above the industry average of 0.91.
Additionally, Toronto-Dominion has a dividend yield of 3.93%. However, the bank’s current year earnings are projected to decline 0.5%, while sales is expected to fall 1.4%.
Nevertheless, analysts seem optimistic about the stock’s earnings performance. Over the last 30 days, the stock has witnessed three upward revisions (against no downward revision) for fiscal 2016 and fiscal 2017. The Zacks Consensus Estimate rose 1.9% to $3.70 for fiscal 2016 and 1% to $3.92 for fiscal 2017.
Toronto-Dominion carries a Zacks Rank #2 (Buy) and has a VGM Score of ‘B.’ Our research shows that stocks with a VGM Score of ‘A’ or ‘B’ when combined with a Zacks Rank #1 (Strong Buy) or 2 offer the best upside potential.
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