CIBC p/e lowest of big 5 Canadian bank stocks

Financial stock CIBC’s latest results include those of The PrivateBank, a recent acquisition that diversifies CIBC’s earnings and lessens its dependence on Canada. Its shares are attractive for their above-average yield and below-average valuation. CIBC is a buy for growth and income.

Big5CanadianBankStocksCIBC had a good quarter in its latest reporting period. The bank’s third-quarter earnings per share, or EPS, though up modestly from last year, exceeded analysts’ expectations. Adjusted EPS was $2.71 for the quarter, up from $2.67 a year ago, and $0.05 above the consensus estimate of $2.66.

The results reflected solid contributions from most of CIBC’s businesses, as well as the $5.0-billion acquisition of The PrivateBank, which closed in June. Chicago-based PrivateBank is a middle-market commercial bank that considerably expands CIBC’s geographical reach.

Canadian Imperial Bank of Commerce (TSX—CM; NYSE—CM) is Canada’s fifth-largest bank by market capitalization, with 11 million personal banking, business, public sector and institutional clients. Across its personal and small business banking, commercial banking and wealth management, and capital markets businesses, the bank offers a full range of advice, solutions and services through its digital banking network, and locations across Canada, the US and the world.

CIBC posts solid Q3 results

The bank’s solid third-quarter results have added to what’s been a pretty good performance so far this fiscal year. For the nine months ended July 31, 2017, CIBC made $3.4 billion (adjusted), or $8.29 a share, compared with $3.0 billion, or $7.62 a share, in the same period of 2016.

Earnings at the Canadian retail and business banking segment rose 15.8 per cent to $2.3 billion, thanks mostly to higher revenue, which benefitted from volume growth and higher fees.

Canadian wealth management earnings, however, declined 43.5 per cent to $419 million, in large part because of a gain on the sale of a minority interest in American Century Investments (ACI) in the prior period. The sale of ACI netted the bank about US$1 billion and paved the way for the subsequent purchase of The PrivateBank.

The latter contributed $23 million in earnings to the US commercial banking and wealth management segment in the third quarter. For the nine-month period, net income at this segment increase to $94 million from $62 million in 2016.

With the release of its third-quarter results, CIBC announced a quarterly dividend increase of $0.03 a common share to $1.30 a share.

PrivateBank acquisition viewed as pivotal

CIBC regards the The PrivateBank acquisition as a pivotal milestone as it attempts to create a strong cross-border business. The acquisition expands the bank’s US presence, diversifies its earnings, and will hopefully strengthen its long-term growth potential. This should take time, of course. In the meantime, the bank’s relatively large exposure to the Canadian market makes it more vulnerable to a potential lending downturn in this country than Canada’s other big banks.

CIBC’s shares yield 4.6 per cent. The stock trades at just about 10.5 times its forecast fiscal 2017 (ends October 31) earnings of $10.89 a share. This is the lowest multiple among the big Canadian banks. The shares, therefore, are attractive for their above-average yield and below-average valuation. CIBC is a buy for growth and income.

This is an edited version of an article that was originally published for subscribers in the December 13, 2017, issue of Money Reporter. You can profit from the award-winning advice subscribers receive regularly in Money Reporter.

Money Reporter, MPL Communications Inc.
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