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TD and Amazon: Buy on Weakness?
This week we look at two titans, one on Bay Street (with a growing footprint to the south) and another in Silicon Valley. Both are touching recent lows. TD and Amazon: buys or passes?
Toronto Dominion (TD) (TD-T)
The banking crisis may finally be over (fingers crossed) with First Citizens Bank buying failed competitor, Silicon Valley, on Monday. The street believes so with financials leading Monday’s modest rally. Between March 1-23, TD
shares slid 13.8% compared to BMO losing 9.8% and Royal only 4.1%. TD was especially punished because of its large U.S. presence and for planning to buy U.S. bank, First Horizon for $13.4 billion. Because of the bank meltdown, the street now values that deal at only $8 billion.
The italics in that sentence are key, because TD can either renegotiate the price or walk away from the deal altogether. Note that First Horizon’s depositor base shrank 10% over the past two quarters, pre-dating the SVB collapse, so some TD shareholders would like to see the deal nixed anyway. At the very least, TD paying far less for First Horizon remains palatable and slightly accretive to TD over time.
The deal deadline was already extended from February to late-May, because both parties had not obtained all the regulatory approvals. This is another lucky break for TD who remain “fully committed” to closing the deal. If TD goes ahead, TD would become America’s sixth-largest bank, with a presence across 22 states.
Canadian investors are well-familiar with TD. It ranks second behind Royal in size, pays a 4.97% dividend, trades at a beta of only 0.83 and 9.47x earnings, and boasts a 37.52% profit margin. Also, TD beat its last four quarters. As recently as February, TD was trading at $93.56 and only on Monday has it started climbing above $78 after its recent punishment. It currently trades below its 50- and 200-day moving averages of $88.16 and $86.93 respectively by around $10.
TD stock is clearly oversold, more than the other Canadian banks. I don’t need to tell readers that Canadian banks enjoy an oligopoly, and they pay robust and sustainable dividends. TD and its sector should recover into April, though keep an eye out for any First Horizon news. A lower price or an outright cancellation will boost TD shares.