CIBC Reports Strong Quarter, Strong Outlook, Stock Upgraded

| About: Canadian Imperial (CM)
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Summary

CIBC reported record adjusted net income for 2014.

Dividend increase represents a 4.14% yield; Citi Group hikes price target.

Why the current sell-off represents a buying opportunity.

Toronto based, Canadian Imperial Bank of Commerce (NYSE:CM) or CIBC, is focused on the Canadian retail and business banking sectors with some exposure to the U.S. Wealth Management sector along with a market presence in the Caribbean, Asia, and the U.K. CIBC is one of Canada's chartered banks and is ranked fifth largest by deposits. In early December, the company released Q4 2014 and year end results. For the year end 2014, CIBC reported net income of $3.2 billion (all figures in Canadian dollars) and record adjusted net income of $3.7 billion, compared with 2013 adjusted net income of $3.6 billion. On an adjusted diluted EPS basis, the company reported $8.94 for 2014 and $8.65 for 2013. However, the reported net income for Q4 2014 was $811 million compared with $825 million for the fourth quarter or 2013. Adjusted net income was $911 million compared with $894 million year over year.

CIBC's retail and business banking segment reported a net income of $2.5 billion in 2014, up from $2.4 billion in 2013. Adjusting for items of note, net income was $2.4 billion, comparable with the prior year. Wealth management proved to be a key asset as net income climbed for the quarter to $119 million, up $16 million from the fourth quarter of 2013.

Citi Group Hikes Target; CIBC Increases Dividend

Citi Research analyst Stefan Nedialkov published a "buy" rating as he is impressed by CIBC's "strong profitability" and "capital generation." Mr. Nedialkov likes CIBC's strong domestic focus, which is more robust than its bank rivals. Nedialkove commented:

CIBC has also done a good job of addressing the issue of low credit risk weights. Eventually, we believe, most Canadian banks would need to return more capital to shareholders (higher dividend payouts and buybacks) and CIBC is likely to be at the forefront of this trend."

Nedialkove's new target price for CIBC is $123, up from $102.

Meanwhile other sources who polled 15 analysts covering CIBC rate the bank with a "hold." Further, the same source reports that the analysts offering price targets for CIBC have a median target of $111/share.

CIBC declared a dividend for the common shares of $1.03 per share, representing a 3% increase from $1.00 per share. Based on current trading levels, this represents a healthy and sustainable yield of over 4 percent.

Still Strong on CIBC

It is in my opinion that shares in CIBC still have room to grow to around $110/share based on favorable and encouraging fundamentals, strong annual results, and a handsome dividend. A modest 14x P/E ratio places CIBC around the $110/share, which is a great distances from the current sub $100 trading range. Investors who enter the stock at the current price level could achieve at least a 6% upside in capital appreciation over the next 12 months. Couple the upside of the stock with a healthy 4% dividend to quickly reach 10% growth in the next year. It is also an excellent buying opportunity for income investors who are looking to open a position or to increase their positions. For income investors, the timing is critical as yield increases when share price decrease which makes the current situation a buying opportunity. Assuming that CIBC increases the dividend payout in 2015 by 4%, then investors who buy today will see their shares earn 4.30% in 2015 which is up from 4.14% today.

Disclosure: The author is long CM.

The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.