Stock of the Week: CIBC

Are the glory days over? Or is this just a new beginning?

Andrew Willis 14 September, 2020 | 1:48AM

 

 

Andrew Willis: Back in the good old days of PC Financial banking accounts, CIBC (CM) was in its element. Around 2011, it was making strides in consumer satisfaction, bettering branches and improving operations. However recently, growth has slowed  – and we’re concerned about its exposure to the Canadian housing market. Should you worry?

It’s worth considering what might be bringing growth down. Morningstar equity analyst Eric Compton says that currently expense growth is eating up most of the revenue growth in the company, and as such we don’t forecast much improvement in operating efficiency. However, we’ve noticed that CIBC has improved its core operating performance over the years. Its latest quarterly results have us increasing our fair value by a few dollars to $120 a share.

Many expenses are going towards new technology and customers outside of Canada. After the company’s acquisition of Private Bancorp in the U.S., CIBC now looks to have up to 25% of revenue coming from down South…

CIBC typically hasn’t had the top share of customers, despite having one of the largest networks of branches. Also, of all the banks, they have the highest concentration of uninsured mortgages, which is a key risk. But it has come a long way, and recent undergrowth in the mortgage segment could be a sign they’re continuing to improve in terms of underwriting discipline…we hope.

For Morningstar, I’m Andrew Willis.

Securities Mentioned in Article

Security NamePriceChange (%)Morningstar Rating
Canadian Imperial Bank of Commerce101.96 CAD-0.50

About Author

Andrew Willis

Andrew Willis  is Content Editor for Morningstar.ca

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