NEW YORK (TheStreet) -- Shares of Toronto-Dominion Bank (TD - Get Report) are down 2.98% to $39.73 on Friday morning, after Barclays downgraded the Canadian bank to "underweight" from "equal weight" and lowered its price target to $53 from $57.
"Despite recent weakness in the performance of the Canadian banks, we see little additional upside potential and believe that slower-than-anticipated economic growth will weigh on the earnings growth and valuations of the group," analyst said.
Barclays has lowered their earnings estimates to reflect an even greater moderation in demand for consumer borrowing than they had previously priced in, and they have also lowered their target multiples to reflect a revised growth forecast, resulting in an average 8% reduction.
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"From our standpoint, the surprise reduction in the overnight rate by the Bank of Canada is a net negative for the banks. We believe that the action from the central bank implies lower economic growth than is currently reflected in the market," analysts added.
Furthermore, the decline in oil prices is anticipated to weigh on the economy of Alberta, potentially putting the province in a recession, analysts noted, adding that although lower gasoline prices should support consumption in other regions, it is not expected to be a full offset.
As the market digests the headwinds facing Canadian economic growth, Barclays anticipates that earnings expectations are likely to decline in the near term.
Separately, TheStreet Ratings team rates TORONTO DOMINION BANK as a Buy with a ratings score of B-. TheStreet Ratings Team has this to say about their recommendation:
"We rate TORONTO DOMINION BANK (TD) a BUY. This is driven by a number of strengths, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its revenue growth, growth in earnings per share, expanding profit margins, increase in net income and notable return on equity. We feel these strengths outweigh the fact that the company has had lackluster performance in the stock itself."
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- TD's revenue growth has slightly outpaced the industry average of 0.3%. Since the same quarter one year prior, revenues slightly increased by 5.1%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
- TORONTO DOMINION BANK has improved earnings per share by 8.3% in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past two years. During the past fiscal year, TORONTO DOMINION BANK increased its bottom line by earning $4.13 versus $3.45 in the prior year.
- The gross profit margin for TORONTO DOMINION BANK is currently very high, coming in at 82.25%. It has increased from the same quarter the previous year. Regardless of the strong results of the gross profit margin, the net profit margin of 20.61% trails the industry average.
- The net income growth from the same quarter one year ago has exceeded that of the Commercial Banks industry average, but is less than that of the S&P 500. The net income increased by 8.2% when compared to the same quarter one year prior, going from $1,589.00 million to $1,719.00 million.
- The return on equity has improved slightly when compared to the same quarter one year prior. This can be construed as a modest strength in the organization. Compared to other companies in the Commercial Banks industry and the overall market on the basis of return on equity, TORONTO DOMINION BANK has outperformed in comparison with the industry average, but has underperformed when compared to that of the S&P 500.
- You can view the full analysis from the report here: TD Ratings Report