CIBC, one of the Big 5 Canadian bank stocks, is a primary target for short-sellers. This has driven its P/E ratio below ten times its likely fiscal 2015 earnings and its dividend yield to an attractive 4.9 per cent. Seldom does a big 5 Canadian bank stock become a bargain stock for value investors.
Canadian Imperial Bank of Commerce (TSX─CM) is one of the primary targets of U.S. short sellers. These investors, who have essentially made bets the bank’s shares will fall, have targeted the bank because of its strong Canadian orientation. More than three-quarters of its earnings come from domestic personal and commercial banking. Currently, 3.5 per cent of the bank’s total shares outstanding on U.S. exchanges have been shorted, compared to an average short position for Canadian banks of two per cent.
CIBC is a leading Canadian-based global financial institution with nearly 11 million personal banking and commercial clients. Through its three major business units — Retail and Business Banking, Wealth Management and Wholesale Banking — the bank offers a full range of products and services through its electronic banking network, branches and offices across Canada, with offices in the U.S. and around the world.
The bank has reported modest earnings growth so far this fiscal year. For the six months ended April 30, 2015, CIBC made $1.8 billion (adjusted), or $4.64 a share, compared with $1.8 billion, or $4.48 a share, in the same period of 2014.
Net interest income rose 4.0 per cent to $3.7 billion, primarily due to volume growth across retail products, a gain from accounting adjustments, higher trading income and higher revenue from corporate banking.
With the release of its second-quarter results, CIBC announced a quarterly dividend increase of $0.03 a common share to $1.09 a share.
Shorts make CIBC a bargain stock for value investors
With its greater domestic exposure, CIBC is more vulnerable than its peer group to a slowdown in consumer lending in the Canadian economy. But we think the recent impact of short selling on its stock and the general negativity about banks stocks has pushed its shares into undervalued territory.
CIBC trades at a low 9.7 times its likely fiscal 2015 earnings of $9.27 a share. The bank’s average multiple these past five years is 10.7. The current annual dividend of $4.36 a share yields an attractive 4.9 per cent.
CIBC is undervalued. It’s a bargain stock to buy for growth and income.
Money Reporter, MPL Communications Inc.
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