Analyst lowers CIBC’s fair value estimate

“Given the potential for further credit deterioration as the cycle matures, we have adjusted our estimates to allow for a bit more deterioration,” says Morningstar’s Eric Compton

Eric Compton 23 May, 2019 | 5:00PM

Narrow-moat Canadian Imperial Bank of Commerce (CM) reported OK fiscal second-quarter results. While capital markets activity made a comeback and commercial and wealth were generally strong, the increased need for investment drove expenses higher, mostly eating up revenue gains. Given the weaker first quarter, and the expectation for continued expense growth, management admitted on the call that it now expects EPS growth to be close to flat for the year, compared with a medium-term goal of 5% or more.

We’ll note that we were already projecting essentially no growth in EPS from 2019 through 2023 and a decline in return on equity of roughly 200 basis points, so this does not alter our projections materially.

However, after some adjustments for higher expense growth and lower longer-term ROE’s, we are lowering our fair value estimate for Canadian shares to $125 from $131 and are lowering our fair value estimate or U.S. shares to US$94 from US$99.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar Rating
Canadian Imperial Bank of Commerce82.30 CAD-0.36

About Author

Eric Compton

Eric Compton  Eric Compton is an equity analyst for Morningstar,