Toronto-Dominion Bank will release its quarterly report on Thursday, and in general, investors have been pleased with the Canadian bank's prospects over the past several months. But in light of surprisingly negative news from rival Bank of Montreal on Tuesday, Toronto-Dominion Bank will have to demonstrate that it's able to avoid the troubles that hurt its rival's results during the most recent quarter.

Toronto-Dominion has a lot in common with Bank of Montreal, as both have large U.S. operations to go with their domestic Canadian businesses. For banking customers in the U.S., Toronto-Dominion's TD Bank subsidiary has done a good job of growing all along the East Coast, expanding from its base of operations in Maine as far south as Florida. Yet Bank of Montreal's recent results could raise questions about whether Toronto-Dominion's southward push is the best move in the current financial environment. Let's take an early look at what's been happening with Toronto-Dominion Bank over the past quarter and what we're likely to see in its report.

Stats on Toronto-Dominion Bank

Analyst EPS Estimate

$1.98

Change From Year-Ago EPS

8.2%

Revenue Estimate

$6.42 billion

Change From Year-Ago Revenue

9.1%

Earnings Beats in Past 4 Quarters

3


Source: Yahoo! Finance.

Can Toronto-Dominion earnings keep rising?
Analysts have been generally upbeat in their views on Toronto-Dominion earnings in recent months, raising October-quarter estimates by a penny per share and their full-year fiscal 2014 projections by about 1%. The stock has put up solid gains of more than 6% since late August.

Toronto-Dominion faced challenges in its July quarter results, with profits falling 10%. Losses in its insurance operations and sluggish results from its wholesale banking division weighed on overall results, but TD's retail banking operations in the U.S. and Canada were still strong. Toronto-Dominion also raised its dividend by almost 5%, reflecting the optimistic mood.

Yet Bank of Montreal's latest results raise some questions about Toronto-Dominion as well as the general health of Canada's banking industry. In an effort to cut costs, Bank of Montreal said it had cut almost 1,000 jobs, three-quarters of which came from its Canadian operations, over the past three months. That helped the bank reduce non-interest expenses by nearly 4% for the quarter, but Bank of Montreal's U.S. division didn't perform as well as investors had hoped. Still, BMO's increased dividend and stock repurchase program indicate longer-term optimism about its prospects, and that could get reflected in Toronto-Dominion's results as well.

Even with some concerns about the bank's U.S. business, Toronto-Dominion keeps expanding south of the border. Earlier this week, TD opened a new credit card office in Delaware to support its North American credit card business. By doing so, the company hopes to bolster its credit card presence in the U.S., trying to capitalizing on improving credit conditions as the recovery from the financial crisis continues apace.

Even more interesting is the prospect that Toronto-Dominion might seek to buy Citizens Bank, which is owned by Royal Bank of Scotland . Rumors of a potential $13 billion deal for Citizens surfaced back in October, but thus far, nothing has happened to substantiate those rumors. With RBS facing scrutiny from the U.K. government to reorganize, it might be looking to divest its U.S. operations, and the move could greatly enhance TD's presence in the States. But TD's top executive said earlier this year that a potential acquisition of Citizens wouldn't necessary match well with the bank's usual guidelines for buyouts.

In the Toronto-Dominion earnings report, watch closely to see if its results mirrors those of Bank of Montreal. If TD can outperform its Canadian peer, then it could point to greater gains for the company's stock going into the end of the year.

Are the best banks south of the border?
Canadian banks did well during the financial crisis, but many investors are still terrified about investing in their U.S. counterparts. Still, the sector has one notable stand-out. In a sea of mismanaged and dangerous peers, it rises above as "The Only Big Bank Built to Last." You can uncover the top pick that Warren Buffett loves in The Motley Fool's new report. It's free, so click here to access it now.

Click here to add Toronto-Dominion Bank to My Watchlist, which can find all of our Foolish analysis on it and all your other stocks.

The article Can Toronto-Dominion Bank Avoid Bank of Montreal's Stock Drop? originally appeared on Fool.com.

Fool contributor Dan Caplinger has no position in any stocks mentioned. You can follow him on Twitter: @DanCaplinger. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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