Opinions
Greg Newman
Canadian Imperial Bank of Commerce
CM-T
COMMENT
Jul 28, 2016
Stock price when the opinion was issued
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Make sure it stays above $86. A range of $5 is not going to break the bank ;) But $86 is where you might want to start trimming and looking at some of the underperforming banks such as TD. He can't imagine TD will stay in its current situation forever. This strategy will also add to your diversification. But be cautious selling, because it's on a nice upswing.
This type of stock is not going to drop from $91 to $50 on a single announcement, it's a lot more predictable than that.
Taking less on credit provisions than other banks. Positive: credit situation better than others. Negative: taking more risk and, if wrong, stock would be penalized. Canada-centric. Exposed to residential mortgages and commercial real estate in Canada; two iffy sectors, but doing better than expected. Good earnings and good asset management.
Don't sell. Trading more cheaply than RY. RY commands a premium price for a premium asset.
Used to have a habit of running into sharp objects, but CEO has turned this around. Warrants consideration. Great domestic personal and commercial business, capital markets, and wealth management. Modest presence in US, and has stayed out of trouble there.
If you already own NA and RY, consider TD or BMO before this one. But if you're going to add 2 more banks to your portfolio, no quarrels with adding this one.
Premium contentWe've already recommended National Bank, so let's look at the second-cheapest bank, CIBC, with its 11.2.x PE and EPS growth over five years of 5.39%, better than RY's 5.16%. Commerce has beaten its last four quarters with room to spare, and pays a safe dividend of 4.49%. Its EPS growth is beating the sector, and its most recent EPS was 17.89% higher than a year ago. CIBC's margins outpace the sector. Unlike TD, CIBC has a small presence south of the border. Because of that, a lot of its business lies in Canada—residential mortgages and commercial business—which will slow down if the economy does. That would explain why the street has assigned CIBC a lower future PE of 11.09x. That said, CIBC offers a safe, generous dividend with reasonable room to grow, certainly better than TD.
This is the worst of the 5 big banks at this point. They just made a US acquisition and paid 17X, and it trades at around 11X. It is likely going to be dilutive. They are going to go from the best balance sheet, highest CET1 to the worst as a result, with no earnings per share growth for the next little bit. The stock is OK, but you can get a much better growth rate and a very similar valuation with one of the other banks. He would go Royal (RY-T) or Bank of Nova Scotia (BNS-T). (See Top Picks.)