Toronto-Dominion Bank

’s stock surge is sustainable, market watchers believe, but only if the bank sends the right message to shareholders and delivers solid earnings for the rest of the year.

The firm spent years in the penalty box under the shadow of United States investigations that culminated in fines of more than US$3 billion and a cap on its American retail banking business last October. Its stock slumped even further when it suspended its financial guidance less than two months later.

But with new chief executive Raymond Chun leading a strategic review that’s seen the bank sell its stake in Charles Schwab Corp. for US$14 billion, promise cost savings through a restructuring program and pledge to find new areas for growth, Toronto-Dominion’s shares have gained almost 33 per cent this year, outperforming its Canadian rivals by a wide margin. The stock closed at $101.70 on Thursday.

TD can outperform the S&P/TSX composite index for the remainder of the year, said Brian Madden, chief investment officer at Toronto-based First Avenue Investment Counsel, but it will take more for the lender to stay ahead of its Canadian banking peers.

“If it is to continue this pace of outperformance vis-a-vis its Big Six peers, then it needs to really turn on the afterburners in terms of actual earnings growth, which would require big earnings beats in the final two quarters of the year,” Madden said in an interview.

While he’s held TD as one of his top picks at the beginning of the year, his firm has since sold off some of its shares, arguing that most of the stock’s catch-up rally is behind it. TD is now facing more competition from

Royal Bank of Canada

, currently First Avenue’s favourite Canadian bank. RBC is a market leader in virtually every business line it operates in, Madden said.

TD shareholders are also looking ahead to the bank’s Sept. 29 investor day and its upcoming earnings for clues on whether the firm can keep up the momentum. A lot of the bank’s success will depend on strengthening weaker segments like Canadian banking and wealth, which have underperformed its own targets, National Bank Financial analyst Gabriel Dechaine said.

The bank can still reach the seven per cent to 10 per cent earnings per share target range it suspended last year, despite the asset cap, Dechaine said. He sees its U.S. business as a significant earnings driver that could generate double-digit gains in 2027 and settle into high single-digits by 2028.

“Six months ago, you’d think that with this asset cap constraint, their growth is going to be subpar relative to the peer group,” Dechaine said in an interview. “However, maybe they’re going to still be able to grow at least a peer growth rate.”

TD Bank was not immediately available for comment.

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TSX-listed banks have been performing well despite the slowdown in the Canadian economy and ripple effects from tariffs. TD reported $1.97 in earnings per share for the second quarter, coming ahead of analyst expectations as all business segments posted stronger results than expected.

TD’s double-digit gains have been a main contributor to the S&P/TSX bank index’s 11 per cent rally so far this year, driving it to back-to-back record highs.

Chief executive Chun has been winning over shareholders since he took the helm in February in an executive succession plan that was put into effect ahead of schedule in the wake of the bank’s anti-money laundering issues. Shareholders, including Madden, have commended the bank’s balance sheet review.

Dechaine said TD management has been able to pivot in a way that gave the market a clearer view and understanding of what its U.S. balance sheet would look like. “I think the honeymoon phase is not over yet, we’re still full on that,” Dechaine said. “But eventually that ends and the numbers have to start to show up.”

—With assistance from Christine Dobby.

Bloomberg.com