Toronto-Dominion Bank shares were upgraded at RBC Capital Markets Friday on the back of quarterly results that convinced an analyst it's getting "too hard to ignore" TD's growth potential.
 
Darko Mihelic boosted his recommendation on TD shares to outperform (the equivalent of a buy) from sector perform (the equivalent of a hold), while maintaining his price target at $106. Of the 16 analysts tracked by Bloomberg, seven say TD is a buy, and the other nine say it’s a hold.
 
TD beat expectations Thursday and caught many analysts' attention as a key measure of its profitability expanded in the United States. The net interest margin (NIM) — which measures the difference between how much a bank generates from interest on loans versus how much it pays in interest — for its American retail banking business surged to 2.62 per cent in the fiscal third quarter from 2.21 per cent in the previous quarter.
 
TD is aiming to significantly expand its American footprint by acquiring Tennessee-based First Horizon Corp. for US$13.4 billion. That takeover was announced in February and is still awaiting final regulatory approvals, which TD said it hopes to secure by the first quarter of its next fiscal year.
 
"In the past, the U.S. NIM has been volatile but assuming modest improvements and what we believe are reasonable estimates for First Horizon, we think TD's relative earnings per share growth will be too hard to ignore," Mihelic stated in his report.
 
It's not just the U.S. division that inspired Mihelic to change his view on TD's shares. He said the bank's Canadian business "seems to be 'fighting back'" after its net income rose six per cent year-over-year to $2.25 billion in the latest quarter.
 
TD's stock has fallen behind its peers in recent months. Since peaking in early February, the shares tumbled 20.2 per cent through the close of trading Thursday, meeting the threshold for what's known as a bear market. By contrast, the broad TSX banks subgroup was down almost 17 per cent over the same period.