Toronto-Dominion Bank (TD)

Total return at 5 years: 5.4%/year = 2.5% appreciation + 2.9% dividend. The target price ($132) is ex-dividend; the $18 in dividends collected over 5 years are added separately.

By both methods, the value today (DCF $201 · Multiples $121) exceeds the market price ($116).

Today — fairly valued: at $116 trades ~4.1% below its value discounted to today (~$121); the discount is positive but does not reach the margin of safety we require (≥38%).

At 5 years — En valor: the target price ($132) plus dividends yield between the 4% floor and the 10% average return — a reasonable return, though without the margin of a great investment.

The bridge: the return at 5 years exceeds the risk-free rate (4.5%) — but the discount does not reach the required margin of safety (≥38%). To require a 15% annual return, it would need to be bought at ~$77.

Educational / informational. Does not constitute investment advice.

The inverse approach: instead of projecting growth to obtain the value, the market price ($116) is taken as given and it solves for what annual owner-earnings growth would need to hold for 5 years for the present value —at the method's rate (4.5%, no-growth terminal)— to equal that price. It is the disconfirmation test: the expectations the price already pays for, contrasted against the method's projection.

The market discounts less growth (-6.8%/year) than we project (5.0%/year) → if the base case holds, there is margin: perception is more pessimistic than the estimated reality.

That growth implies ~CAD 11.9 bn of owner earnings in year 5 (vs ~CAD 21.5 bn of our base case). It recalculates if the DCF assumptions are edited.

A bank is valued on equity (P/E × common earnings + price/tangible book), not EV: deposits and debt are funding. It returns capital via dividend + buyback —the buyback reduces the share count, so earnings per share grow faster than aggregate earnings—. Total return adds the dividend collected along the way. In edit mode, the metric, shares, dividend, and exit multiple can be adjusted.

Equity-level model: net income attributable to common shareholders per share is valued against a normalized P/E, because at a bank debt and deposits are operating funding and not capital structure. The entire fundamental apparatus runs in Canadian dollars, the reporting currency; the price is taken in U.S. dollars, the quoting currency, and the conversion happens once, at the close of the cascade. Year zero is not reported net income: the trailing-twelve-month window is depressed against the current adjusted pace by the CAD 200 million restructuring charge from the first quarter of 2026, the CAD 197 million charge from the change in participation in the U.S. card portfolio, and the CAD 288 million tax adjustment on the second-quarter-2026 Schwab gain, so the base is normalized to adjusted net income attributable to common of the nine months ended July 31, 2026, CAD 12,658 million, annualized at CAD 16,877 million. That window is built by levels from the third-quarter report because the securities regulator's structured database has not yet incorporated that quarter or the two before it, even though the bank presented them in February, in May, and in August. The share count path is a single one for all three scenarios and reflects the net reduction already revealed of 4.0% year over year, moderated to 2.8% in the first year because the current buyback offer has a declared ceiling of CAD 7 billion, of which between January 20 and July 31, 2026 CAD 5.4 billion was already executed for 37.7 million shares at an average price of CAD 143.31; the pace moderates afterward as the Common Equity Tier 1 ratio converges from the current 14.3% toward the bank's own target of approximately 13% by October 31, 2027. The dividend grows at 4.5% annually, below the last observed step (+6.7% year over year, from CAD 1.05 to CAD 1.12 per share) under the semiannual review cycle the bank declares to align the dividend with earnings growth.

Today's multiple compresses on its own going forward as the metric per share grows (accelerated by the buyback, which reduces the share count). The exit multiple at 3 years is higher than the terminal at 5 years —at 3 years there is more growth still ahead—. Total return adds the dividend collected; the required return is applied to the base scenario.

They are valued separately, with their own rationale, and are not incorporated into the base or the verdict (they are excess return). When assigning them value — in Editmode —, the total with optionalities updates live, without moving the base.

The verdict, the base CAGR, and the margin of safety are always calculated on the base; optionalities do not alter them (with optionalities at $0 they do not move).

Each card fixes a required annual return and answers: if the business is worth $132 in 5 years, what is the maximum that can be paid today to obtain that return? Since it now trades at $116, the margin of safety is how much cheaper the market is than that maximum. The three thresholds: 4% covers inflation (the floor), 10% is the long-term average return, and 15% is the level of a great investment.

With a target price of $132 in 5 years plus $18 of dividends collected (the dividend adds to the return, not to the price) and a required return of 4.5% annually, the maximum to pay today is $121. Against the current market price ($116), the margin of safety is 4.1% (trades below the maximum → there is margin) and the total return at that price would be 5.4% annually.

• Entry multiple. 16× on normalized common-attributable earnings, above the ceiling of the bank archetype's 10-to-15-times band.
• Dividend yield. 2.7% on a quarterly payment of CAD 1.12 per share, approved on May 27, 2026, and a payout close to 45% of normalized earnings.
• Estimated total return. +5% annually over five years, with +2% from price and +3% from the dividend.
• Margin of safety. It trades close to intrinsic value, far from the required margin of safety. The current verdict is Fairly valued.

• Return on tangible common equity. 17.1% adjusted for the half-year ended April 30, 2026, in the excellent band against the 10% bar.
• Predictable results. Adjusted common-attributable earnings range between CAD 3,966 and CAD 4,115 million over the last two quarters: a stable base.
• Reinvestment runway. Limited: the asset cap shuts off balance-sheet growth in the United States, and Canada is a mature market.
• Quality of reported earnings. The gap between reported and adjusted was enormous in fiscal 2025 because of the Schwab sale; the valuation base is normalized for that reason.

Annual levels from the official filing (10-K); the % over each bar is the year-over-year (YoY) growth vs the prior year.

In a bank, revenue breaks down as volume by spread: deposits fund loans and the difference between what is charged and what is paid is net interest income, which totaled CAD 26,946 million in the nine months ended July 31, 2026. Wealth management, brokerage, insurance, and wholesale banking fees rest on that core. The points correspond to the second quarter of 2025 and the first, second, and third quarters of 2026, in that order.

The % are the annual (year-over-year) growth: each year —historical and projected— vs the prior one; the TTM (trailing 12m) vs the TTM of a year ago, to avoid overlapping windows. The historicals are exact figures from the official filings; the projected years come from the year-by-year model (the intermediate years without their own series are interpolated between the anchors). The projected columns (+1y…+5y) are 12-month windows counted from the TTM close (31-jul-2026): the projection starts from the most recently reported data, not the fiscal year. The projected base is realistic and unbiased — the risk discount is applied at the end, via the required return. The rationale for each metric is in the (i).

• Revenue growth. 8.3% in the adjusted half-year against the same half-year a year earlier; 5.9% in the standalone quarter.
• Growth by segment. Wholesale banking 18%, wealth 8%, Canada 5% and the United States 4% on an adjusted basis: the consolidated figure is a weighted average, not a monolith.
• Earnings per share. The already-revealed 4.1% year-over-year share reduction adds several points on top of aggregate earnings growth.
• Structural ceiling. The US$434 billion cap on the U.S. subsidiaries limits the group's largest growth avenue.

• Ten-year relevance. A concentrated deposit and credit system in Canada does not disappear; the distribution channel changes faster than the underlying economics.
• Differentiated product. Credit is largely commoditized; the difference is made by the cost of funding and the customer relationship.
• Pricing power. Limited and regulated, but the structure of the Canadian system avoids destructive competition on spreads.
• Operating leverage. Adjusted efficiency ratio of 55.2% in the quarter, improving from 57.8%, with expense guidance of 3% to 4% against revenue growing faster.
• Recession behavior. The 0.43% annualized provision shows an orderly credit book, but a bank is inherently cyclical.

• ✓Capital adequacy (CET1)CET1 14.3% (+3.3pp above the minimum)
• ✕Reserve coverage (allowance / loan book)0.96% of the loan book
• ✓Credit quality (net charge-off rate)0.41% annually
• ✓Value creation (ROTCE − 10% bar)+8pp
• ✓Funding (deposit base)Deposits $1,260.7 bn

A traffic-light interpreted by the method (not generic): float (negative WC) adds up, capex is judged by incremental ROIC (malinvestment test), and a lender is not subjected to corporate solvency. The (i) shows the derivation of each number.

ⓘ Has a loan book: credit health (delinquency, coverage, normalized CECL, RoA/RoE) is evaluated separately, not with corporate solvency.

• Capital. Common Equity Tier 1 ratio of 14.3% against a regulatory target of 11.5% and the bank's own target of approximately 13% by October 31, 2027.
• Coverage. Allowance of CAD 9,454 million over CAD 5,281 million of gross impaired loans: 1.8 times.
• Book quality. Annualized provision of 0.43% of credit volume, within the bank's own guidance of 0.40% to 0.50%.
• Funding. CAD 1,243.4 billion of deposits against CAD 964.3 billion of net loans: ample funding.

How cash comes in and how it is deployed. In green, the business's own cash (the owner-FCF it generates and reinvests); in gray, the float and credit — customer and funding money, which is not the shareholder's.

The only source of shareholder capital in a bank is net income attributable to common shareholders, because deposits and debt are operating funding, not owner capital. On a normalized net income of CAD 16,877 million, the dividend consumes around CAD 7.3 billion and the 2026 buyback offer authorizes up to CAD 7 billion, of which CAD 5.4 billion had already been executed as of July 31, so the payout approaches total net income. It is consistent with a Common Equity Tier 1 ratio of 14.3% converging toward the bank's own target of approximately 13% by October 31, 2027.

• Capital allocation. Returns nearly all earnings between dividend and buyback, consistent with a Common Equity Tier 1 ratio converging from 14.3% toward the bank's own target of approximately 13% by October 31, 2027.
• Buying back at a good price. The buyback is running with the stock at a high multiple of tangible book value: it adds less value per share than it would at depressed prices.
• Candor. The release details the remediation timeline, the asset cap and the associated expense without softening it, and includes the risk of an extension.
• Equity alignment. Cannot be quantified: the entity does not file a proxy statement on EDGAR, and the gap is declared rather than estimated.

• The price does not embed a discount: after a sharp re-rating, the entry multiple ended up above the ceiling of the bank archetype's band.
• The market appears to be pricing in the close of the regulatory chapter: adjusted results recovered strongly, and the buyback funded with surplus capital sustains earnings-per-share growth.
• The Common Equity Tier 1 ratio of 14.3% against a regulatory target of 11.0% is visible and quantifiable, and the market tends to pay in advance for the return of that surplus.
• Subsequent event after fiscal year-end, disclosed: the May 28, 2026 release reports a dividend increase and continuation of the buyback offer, and reiterates guidance of 3% to 4% adjusted expense growth and 0.40% to 0.50% provisions for fiscal 2026.

No positive source of missing buyers or motivated sellers is identified. The correct reading is that the market is paying for the recovery of adjusted results and the normalization of capital, not that there is a perception-reality gap in the buyer's favor.

The annual return (CAGR at 5 years) in each scenario, with the total period return below — the margin of safety made visual: upside range wide, downside range narrow.

Even in the bear scenario, the return holds at -1%/year (-3% total): the margin of safety protects the downside. The bull (+10%/year, +58% total) exceeds it comfortably — a favorable asymmetry, with a narrow downside range and a wide upside range.

• Regulatory restriction. US$434 billion asset cap on the two U.S. banking subsidiaries, still in effect.
• Remediation timeline. Milestones through calendar year 2027 and a declared possibility of broadening the scope of the retrospective reviews.
• Credit cycle. Gross impaired loans up 9% year over year, with Canadian personal and commercial banking up 19%.
• Exchange rate. Results are generated in Canadian dollars and the stock is paid for in U.S. dollars: the cross-rate enters into the return.
• Entry price. The multiple ended up above the archetype's band.

Each thinker's analytical framework applied to our data.

• Buffett / Graham Quality + margin of safety

  A wide moat and ROTCE 18% above the 10% bar, but the margin is limited (+4%) → excellent business at a fair price.

• Peter Lynch Growth at a reasonable price (GARP)

  A stalwart growing 5% at a PEG of 3.3 → expensive for its growth.

• Joel Greenblatt Cheap and high-return (Magic Formula)

  Not applicable — the Magic Formula excludes financials and regulated businesses (EBIT/EV does not capture the operating leverage).

• Howard Marks Perception vs reality + cycle

  The price discounts -7% vs our 5%: perception is more pessimistic than reality, with an identified source of the discount.

• Seth Klarman Capital protection (bear scenario)

  Bear-scenario floor -4%/yr, bull-scenario ceiling +7%/yr over 5y: reasonable asymmetry, without an ample cushion.

• Pat Dorsey Moat strength (Five Rules)

  A wide moat, stable; sources: cost advantage, efficient scale, switching costs, intangibles → passes the Five Rules.

• Aswath Damodaran Expectations implied by the price

  Justifying the price requires discounting -7%, within what we project (5%) — the story squares with the numbers.