Credit Suisse analyst Joo Ho Kim further lowered his financial forecast for Canadian banks following weaker-than-expected third-quarter results that saw both core earnings per share share and pre-tax, pre-provision earnings fall short of his projections by 6 per cent and 4 per cent, respectively.
“Revenue came in slightly (1 per cent) higher than what we had forecast, reflecting in-line NII [net interest income] and better capital markets performance, while expenses were higher (5 per cent) than expected. Credit overshot the Street estimate and Credit Suisse estimate (by 8 per cent, due to higher performing PCLs), and we believe that investors will pay an even greater degree of attention on this line as we head into next year, given the balance of views on ‘soft landing’ for the economy, and the further adverse impact of higher rates on consumers and businesses.”
In a research note released Tuesday, Mr. Kim said the quarterly results “highlighted ongoing challenges faced by the sector, especially given the industry-wide miss on both headline and PTPP earnings.”
“Although that kind of softer performance for the second quarter in a row may suggest that forward estimates have been adequately lowered (down 10 per cent year-to-date), we continue to believe that there are more areas in the banks’ earnings drivers that could further weaken ahead (or that at the very least, estimation risk could remain high), despite the recent improvement in the macro outlook,” he said.
“The bottom line is, we modestly took down our estimates yet again on the back of these results through the Q3 earnings season, and were not able to find concrete enough evidence to suggest that an inflection point on the group’s earnings trajectory has been reached (especially given the lingering concerns around credit).”
Citing “a potentially challenging operating environment” across the sector next year, Mr. Kim thinks Toronto-Dominion Bank “stands in a unique position to deploy capital and earn through those challenges.”
He reiterated his “outperform” recommendation and $93 target for TD shares. The average target on the Street is $91.65.