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United States 'Throwing in the towel': TD stock sinks as bank suspends guidance amid review
TD Bank (TD.TO)(TD) shares sank Thursday, with investors disappointed by the lender’s decision to suspend guidance while it conducts a strategic review as a consequence of its anti-money laundering settlement in the U.S..
TD missed quarterly profit estimates, but that was nearly an afterthought as analysts sought to find a narrative with TD's targets no longer clear. Jefferies analyst John Aiken described the fourth-quarter results as “irrelevant to its outlook" ahead of Thursday's earnings call and offered even less enthusiasm in a post-call note to investors.
"While the quarterly earnings were marred by several factors including sustained, heightened credit losses, catastrophic losses in its insurance segment and rising costs, our key takeaway was the suspension of [TD's] medium-term guidance," Aiken wrote.
Aiken characterized TD’s decision to suspend targets for earnings growth, return on equity and operating leverage in the near term while the strategic review unfolds as “throwing in the towel for 2025.” Jefferies, which rates TD a "hold", reduced its price target from $85 to $82 Thursday afternoon.
"While 2025 is fully anticipated to be a 'transitional' year, suspending guidance brings into question when the turnaround will begin and investors may need to wait longer for earnings growth to gain traction," Aiken wrote.
"Admittedly, this is difficult to fully assess until there is greater clarity around the new path that TD will chart. With a CEO transition not occurring until next spring and the incoming CEO currently performing a strategic review, investors will likely not get much clarity in the interim."
TD shares were down around 5.75 per cent as at 2:45 p.m. Thursday at $75.10. The bank’s adjusted earnings per share for the fourth quarter were $1.72, below the consensus estimate of $1.81.
The strategic review, under incoming CEO Raymond Chun, is intended to be a wholesale evaluation of the bank’s operations and opportunities in the wake of massive penalties imposed by U.S. regulators over TD’s anti-money laundering failings.
In a note to investors, Scotia Capital analyst Meny Grauman was critical of the time frame of the review, the results of which are expected in the second half of 2025.
“We know that there are many moving parts here, but the features of the bank’s settlement have been known for some time by the market and likely even longer internally, and we would have hoped that TD would have been able to provide a little more concrete guidance to investors here right now,” Grauman wrote.
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“Waiting another half a year or more for management to tell us what the longer-run implications of its U.S. consent order are leaves the stock without a proper anchor, and makes the investment thesis here more challenging despite the very deep discount to peers.”
On Thursday’s earnings call, Chun dismissed the criticism, saying that it made sense for the strategic review to begin as he transitions to the CEO role. In September Chun, the bank’s chief operating officer, was named as current CEO Bharat Masrani’s successor when he retires next year.
In a note to investors, RBC analyst Darko Mihelic writes that TD was signalling 2025 could be a difficult year, but deems the strategic review to be “probably the correct, thoughtful approach for the bank to be taking given its constraints.”
Other analysts also pushed for more insights into the review’s objectives or for precision about expectations in the months ahead, but bank executives largely avoided detail. Chun did agree that share buybacks will likely be on hold during the period of the review. Asked whether the strategic review might result in divestitures, Chun would only say that “everything is on the table.” A question on whether the goal of the review is to emerge in an even stronger position than before received a similar answer.
“I think it's important that we go through this process,” Chun said. “It's going to be a thorough process and it's a prudent thing to do. But before I comment on anything further, I look forward to sharing that with you at the investor day in 2025.”
John MacFarlane is a senior reporter at Yahoo Finance Canada. Follow him on Twitter @jmacf.
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