CIBC—a buy for growth and income

CIBC performed above its peer group average this year, partly due to the results of its June, 2017 acquisition of CIBC Bank USA (formerly PrivateBancorp Inc.). But CIBC is still dominated by its Canadian business and may struggle to keep up with the other ‘Big Five’ Canadian banks’ growth rate over the next two years.

CIBC_a_buy_for_growth_and_incomeCanada’s big banks delivered solid results in their third quarter, with earnings per share (EPS) up an average 11 per cent year over year.

Canadian Imperial Bank of Commerce (TSX—CM) performed slightly better than this average, posting growth of 11.2 per cent. Revenue growth of nearly 11 per cent outpaced the peer group average of six per cent.

CIBC is a leading Canadian-based global financial institution. Through its four strategic business units—Canadian personal and small business banking, Canadian commercial banking and wealth management, US commercial banking and wealth management, and capital markets—the bank provides financial products and services to 11 million clients in Canada, the US and around the world.

The bank’s latest year-to-date results are very much like its third-quarter performance. For the nine months ended July 31, 2018, CIBC made $4.1 billion (adjusted), or $9.21 a share, compared with $3.4 billion, or $8.29 a share, in the same period of 2017.

Net interest income rose 15.6 per cent to $7.5 billion, partly due to the inclusion of the results of CIBC Bank USA (acquired in June 2017) for the full period. Other factors that contributed to the increase were volume growth and wider spreads between borrowing and lending rates across Canadian retail and commercial banking products, plus higher treasury revenue.

The big five Canadian banks, which have enjoyed strong EPS growth this fiscal year, are likely to see this growth fall by about half these next couple of years. CIBC, with its relatively large exposure to the Canadian consumer, may struggle to keep up with the other big banks over this time. Its EPS is expected to increase 2.9 per cent in fiscal 2019 and 5.4 per cent in 2020. Still, the bank is attractively valued at its current price.

The stock trades at just 9.7 times the $12.21 a share that CIBC will probably earn in fiscal 2018 (ended October 31). And the annual dividend of $5.44 a share, which was increased 2.3 per cent with the release of the third-quarter results, yields 4.6 per cent. CIBC is a buy for growth and income.

This is an edited version of an article that was originally published for subscribers in the October 2018/Second Report of The MoneyLetter. You can profit from the award-winning advice subscribers receive regularly in The MoneyLetter.

The MoneyLetter, MPL Communications Inc.
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