Canadian Imperial Bank of Commerce (TSX:CM)(NYSE:CM) released its third-quarter earnings. Despite beating analyst expectations, its net revenue of $4.1 billion was flat from the prior year, while net income was down from $1.4 billion a year ago to just over $1 billion for a decline of 23%. However, without the one-time expenses that the company incurred in its recent quarter, net income would have seen an increase of over 9% from the previous year.
That is just the headline news. I will dig more into the earnings and the company itself to help you determine if this is a good stock to buy today.
Segment analysis
CIBC saw its retail and business banking segment achieve an increase of 8% in its net income year over year. The main drivers of the improved bottom line for the segment were volume growth and higher fees.
The wealth management division saw its adjusted net income grow by 10% from the previous year due to growth in fee-based clients along with higher commissions which helped pushed revenue up for the segment.
The U.S. commercial banking and wealth management segment saw its net income rise by 74% year over year thanks in large part to the inclusion of PrivateBancorp Inc. in the current quarter’s results.
CIBC’s capital markets saw the poorest performance with net income down 10% from the prior year as a result of less trading in derivatives and interest rates.
Dividend hike
CIBC announced that it would be raising its dividend to $1.30 per share, up from the $1.27 it was paying this year, for an increase of over 2%. This is the first increase in 2017, and it wouldn’t be a surprise if the company announced another, as it has increased dividends multiple times a year in the past three years. From a $0.94 quarterly dividend in 2012, the company’s payout has grown by over 38% in five years.
Stock performance and valuation
Since March, CIBC’s stock has declined by over 9%, but in the past five years, it has yielded investors great returns of almost 40%. For the past three months, the stock has failed to break back above $110 and has been stuck in a range of about $105-109 per share.
With the year-over-year drop in profits, the company’s earnings per share for the trailing 12 months has dropped to $11, making the stock trade a bit higher at over nine times its earnings. CIBC has typically traded at a lower multiple than some of its peers, such as Royal Bank of Canada and Toronto-Dominion Bank, which often trade around 12 times earnings since both of those banks have more of a presence outside Canada. However, with the PrivateBancorp acquisition, that could mean a change for CIBC’s stock valuation if the company is able to be less dependent on Canada’s economy.
Bottom line
CIBC presents a great opportunity for both dividend growth and capital appreciation, which should make it attractive to many types of investors. Despite a Q2 that didn’t see any revenue growth, there is much reason for optimism with the bank’s growing presence south of the border, which could create significant growth opportunities.
