When this month started, I’d started a series of pieces on Canada’s bank stocks ahead of the final batch of earnings. This week, I’d touched on Bank of Montreal. Today, I want to look at Canadian Imperial Bank of Commerce (TSX: CM)(NYSE: CM), or CIBC. This is the fifth largest of the Big Six Canadian banks. How does it look ahead of its fourth-quarter 2020 earnings? Let’s jump in.
Why CIBC exceeded expectations in the third quarter
CIBC released its third-quarter 2020 results on August 27. It managed to surpass analyst expectations in the quarter, but earnings were still weighed down from an increase in provisions for loan losses. This was a common occurrence for Canada’s top banks in the third quarter.
Profit for CIBC came in at $1.17 billion, or $2.55 per diluted share — down from $1.4 billion, or $3.06 per diluted share, in the prior year. Meanwhile, provisions for credit losses came in at $525 million — up from $291 million in Q3 2019. However, it was down significantly from the $1.41 billion set aside in the second quarter of this fiscal year. The bank also took a hit due to its exposure to struggling oil prices. Management touted the signs of a rebound going forward.
Like its peers, CIBC also saw a huge boost due to its Capital Markets division. Net income rose 67% year over year to $392 million. It achieved this on the back of higher revenue, as markets continued to bounce back from a brutal start to the spring.
Should investors be optimistic ahead of its Q4 2020 earnings?
CIBC is set to release its fourth-quarter and full-year 2020 earnings before markets open on December 3. The bank came into 2020 hoping to build on its mortgage business. This segment was a leader among its peers for most of the 2010s but fell behind following a difficult 2017. The bank aimed to bolster its performance in this area.
While the COVID-19 pandemic has forced CIBC to divert resources to other areas, the state of the housing market is very encouraging. Not even this historic crisis has been able to stop Canada’s hot housing market in its track. This should still boost Canadian bank stocks going forward.
Oil is another area where this bank needs to see improvement. Demand in the oil and gas space should rebound in 2021, as everyone hopes to see a gradual return to normalcy. In the near term, there will still be a great deal of uncertainty.
CIBC: Is it a buy?
Investors should not expect any of the top banks to turn in jaw-dropping earnings in Q4. In any case, CIBC stock is still worth a look.
Shares of this bank stock last possessed a price-to-earnings ratio of 12 and a price-to-book value of 1.2. This puts CIBC in favourable value territory relative to its industry peers. Its dividend has been one of the top draws in recent years. CIBC does not boast the highest yield among its peers anymore, but it does offer a quarterly payout of $1.46 per share. That represents a strong 5.5% yield.
CIBC is not my top option among Canada’s top banks, but it does offer solid value and an appealing dividend yield.
