BMO Capital Markets analysts upgraded Toronto-Dominion Bank (TD.TO)(TD) to “Outperform” Thursday, flagging a “steep discount” in the stock’s valuation compared to other Canadian banks.
BMO joins a handful of brokerages that have adopted a rosier view of TD following a streak of developments that have discouraged investors and depressed the share price. At this point, the stock’s decline has left it “heavily de-risked,” BMO analyst Sohrab Movahedi wrote in a note to investors.
“We now see a favourable upside/downside skew to the stock,” Movahedi wrote. “At our target price of $90, we see a total return potential of 25 per cent over the next year relative to further downside risk of 7 per cent.”
Movahedi acknowledges that the upgrade “may be a bit early” given TD is transitioning to a new CEO but deems the significant potential upside “compelling enough.”
TD stock was trading just over $75 as at 10:30 a.m. ET Friday, up around 1.2 per cent on the day.
TD’s woes in 2024 stemmed in large part from an anti-money laundering investigation in the U.S. that resulted in massive penalties, including an asset cap on its U.S. retail business. As that was playing out, CEO Bharat Masrani announced his retirement, with current COO Raymond Chun set to formally take over in April 2025. Chun is leading a wholesale strategic review, and TD has suspended forward guidance in the meantime, a move that has irked some investors.
The series of hits the share price has taken have fuelled the recent adjustments by BMO and others. On Monday, Canaccord Genuity Capital Markets raised its target from $87 to $89. On Dec 12, Jefferies analyst John Aiken upgraded TD to “Outperform” and raised the price target to $90 from $82.
Movahedi writes that the “overarching assumption” for TD is that the bank’s U.S. retail business is not an impaired asset, and that the other parts of the lender will “deliver peer-like performance,” save for the “distractions” of the strategic review and CEO change.
John MacFarlane is a senior reporter at Yahoo Finance Canada. Follow him on Twitter @jmacf.
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