TD - Toronto Dominion raised to Outperform at Scotiabank as selloff overdone

Scotiabank analyst Meny Grauman upgraded Toronto Dominion Bank ( NYSE: TD ) to Sector Outperform from Sector Perform on Friday, saying the stock's Q1 earnings -related decline appeared to be overdone.

"The sell-off on earnings day stood out as excessive in our view," Grauman wrote in a note to clients. " The key issue in our mind is the obvious slowdown in NIM expansion which we can clearly see in the results themselves, and which management guided to for the year as a whole."

Capital concerns are less of an issue, he added. While TD's ( TD ) CET1 ratio contracted Q/Q in Q1, its 12% stake in Charles Schwab ( SCHW ) gives the company "a significant amount of capital flexibility," Grauman said. Case in point: TD sold some of its stake in Schwab to acquire Cowen.

He has argued that TD's ( TD ) premium should narrow, "but we believe that the pendulum has swung too far creating a buying opportunity."

Uncertainty over its First Horizon ( FHN ) deal also overhangs the stock, but he sees the impact of TD's numbers as "very modest," especially for this year.

While net interest margin is slowing, Scotiabank doesn't see rate cuts "any time soon," and TD has "best-in-class operating leverage in a challenging expense environment."

Toronto Dominion ( TD ) stock gained 0.3% in Friday morning trading.

Grauman's Outperform rating contrasts with the SA Quant rating of Hold and aligns with the average Wall Street rating and average SA Author rating of Buy.

SA contributor Growth at a Good Price explains why it's staying long on TD after the earnings report.

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