The Toronto-Dominion Bank (TD) and Canadian Imperial Bank of Commerce (CM) are set to report their first-quarter results on February 29, 2024. Both companies are expected to report a year-over-year decline in earnings. TD’s revenue is expected to decline over the prior-year quarter. On the other hand, CM’s revenue is expected to rise in the first quarter.

In this article, I have discussed why waiting for a better entry point in bank stocks TD and CM could be prudent.

For the first quarter, TD’s EPS and revenue are expected to decrease 13.1% and 5% year-over-year to $1.43 and $9.16 billion, respectively. Similarly, CM’s EPS for the first quarter is expected to decline 13.4% year-over-year to $1.24. On the other hand, its revenue for the same quarter is expected to increase 3.2% year-over-year to $4.49 billion.

The global banking industry enjoyed a strong run over the past few years as central banks around the world continued their fight against high inflation by hiking interest rates aggressively. Although higher interest rates clouded global economic growth prospects, the global banking industry saw its profitability rise as its net interest incomes soared.

However, there is now substantial evidence that higher interest rates had the desired impact of easing inflation. Central banks around the world have signaled that the rapid rate hiking cycles are nearing the end. In fact, interest rates are likely to be cut this year.

Several analysts are of the view that interest rates have peaked, and higher funding costs arising out of slowing deposit growth could affect banks’ net interest margins.

Banks’ profitability could also take a hit due to slowing loan growth, and credit standards could remain restrictive. Moody’s, in its Banks – Global 2024 outlook, said, “Reduced liquidity and strained repayment capacity will squeeze loan quality, leading to greater asset risks. Profitability gains will likely subside on higher funding costs, lower loan growth and reserve build-ups.”

Despite the challenges, foreign banks are likely to show resilience by maintaining strong cost discipline, healthy capital and liquidity buffers, diversified revenue streams, and efficient credit risk management.

Let’s examine the fundamentals of the two stocks from the Foreign Banks industry, starting with the one ranked lower from the investment point of view.

Stock #2: The Toronto-Dominion Bank (TD)

Headquartered in Toronto, Canada, TD provides various financial products and services in Canada, the U.S., and internationally. The company operates through four segments: Canadian Personal and Commercial Banking; U.S. Retail; Wealth Management and Insurance; and Wholesale Banking.

In terms of the trailing-12-month net income margin, TD’s 21.91% is 6.9% lower than the 23.53% industry average. Likewise, its 0.55% trailing-12-month Return on Total Assets is 49.2% lower than the industry average of 1.08%. However, the stock’s 3.75% trailing-12-month Capex/Sales is 82.4% higher than the 2.05% industry average.

TD’s total revenue for the fiscal fourth quarter ended October 31, 2023, declined 15.7% year-over-year to C$13.12 billion ($9.71 billion). Its net interest income decreased 1.8% over the prior-year quarter to C$7.49 billion ($5.54 billion). The company’s adjusted net income available to common shareholders declined 16.4% year-over-year to C$3.31 billion ($2.45 billion).

Also, the company’s adjusted EPS came in at C$1.83, representing a decline of 16.1% year-over-year. On the other hand, its net cash from operating activities increased 460.3% year-over-year to C$14.52 billion ($10.74 billion).

Analysts expect TD’s EPS for the second quarter ending April 30, 2024, to decline 2.8% year-over-year to $1.38. But its revenue for the same quarter is expected to increase 0.8% year-over-year to $9.27 billion.

TD’s stock has gained 4% over the past nine months to close the last trading session at $59.78. However, over the past month, the stock has declined 2.2%.

TD’s mixed prospects are reflected in its POWR Ratings. The stock has an overall rating of C, translating to Neutral in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.

TD is ranked #78 out of 89 stocks in the Foreign Banks industry. The stock has a C grade for Growth and Quality.

To see TD’s ratings for Value, Momentum, Stability, and Sentiment, click here.

Stock #1: Canadian Imperial Bank of Commerce (CM)

Based in Toronto, Canada, CM is a diversified financial institution providing various financial products and services. It operates through Canadian Personal and Business Banking; Canadian Commercial Banking and Wealth Management; U.S. Commercial Banking and Wealth Management; Capital Markets and Direct Financial Services; and Corporate and Other segments.

In terms of the trailing-12-month Capex/Sales, CM’s 4.76% is 131.6% higher than the 2.05% industry average. However, the stock’s 9.66% trailing-12-month Return on Common Equity is 9.9% lower than the 10.71% industry average. Likewise, its 0.51% trailing-12-month Return on Total Assets is 52.8% lower than the 1.08% industry average.

For the fiscal fourth quarter, which ended October 31, 2023, CM’s total revenue rose 8.5% year-over-year to $5.84 billion. Its net interest income increased 0.4% year-over-year to $3.20 billion. The company’s cash flows provided by operating activities rose 36.6% over the prior-year quarter to $12.11 billion.

In addition, CM’s adjusted net income rose 16.2% year-over-year to $1.52 billion. Also, its adjusted EPS came in at $1.57, representing an increase of 12.9% year-over-year. But the company’s provision for credit losses increased 24.1% year-over-year to $541 million. Its net interest margin came in at 1.32%, compared to 1.33% in the prior-year quarter.

Street expects CM’s EPS for the second quarter ending April 30, 2024, to decline 3.9% year-over-year to $1.20. But its revenue for the ongoing quarter is expected to increase 5.4% year-over-year to $4.41 billion. Also, the company surpassed the consensus EPS estimates in three of the trailing four quarters.

Over the past three months, the stock has gained 18% but declined 3.4% year-to-date to close the last trading session at $46.51.

CM’s POWR Ratings are consistent with this mixed outlook. The stock has an overall rating of C, translating to Neutral in our proprietary rating system.

The stock is ranked #62 in the same industry. CM has a C grade for Growth, Value, Stability, and Quality.

Click here to see CM’s ratings for Momentum and Sentiment.

What To Do Next?

43 year investment veteran, Steve Reitmeister, has just released his 2024 market outlook along with trading plan and top 11 picks for the year ahead.

2024 Stock Market Outlook >

TD shares fell $0.13 (-0.22%) in premarket trading Tuesday. Year-to-date, TD has declined -7.49%, versus a 6.45% rise in the benchmark S&P 500 index during the same period.

Since he was in grade school, Dipanjan was interested in the stock market. This led to him obtaining a master’s degree in Finance and Accounting. Currently, as an investment analyst and financial journalist, Dipanjan has a strong interest in reading and analyzing emerging trends in financial markets.

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