Canadian Imperial Bank Of Commerce: Next Stop $110?

Summary

The recent pullback represented a good opportunity to open or top up a position in the bank.

Company fundamentals remain strong and continue to improve.

According to analysts the stock still has room to grow.

On October 24th I recommended to buy shares in Toronto Dominion Bank of Canada (NYSE:TD) (see Buy TD Bank on Price Dips and Hold), or TD Bank, as shares in the company had been punished in parallel with the Toronto Stock Exchange. After careful examination of macro level news, it was apparent that the recent pullback was nothing more than a market correction, which in my opinion presented a buying opportunity. Since the document was published, shares in TD Bank have rebounded approximately 2.3%. In that same time frame, shares in the Canadian Imperial Bank of Commerce (NYSE:CM), or CIBC, slid to $96/share (all figures in CDN) from around $108/share and have since rebounded to current trading levels around $102/share. This represented a short term trading opportunity, or an excellent opportunity to open or increase a position in CIBC.

Most of the recent negative market news was based on activity in China and Europe so I fail to see the correlation between CIBC and the negative macro news. Of course, any significant macro news will still impact shares in all the Canadian banks, but I fail to see how the macro news would impact midterm earnings. In fact, shares in CIBC are trading at a healthy Price to Earnings ratio of around 13x and the company continues to increase dividends on the back of strong earnings. The recent dip in share price was an excellent opportunity to increase or open a position. Based on a 14x EPS, CIBC would be valued at $110/ share, which represents a healthy return for those that were able to buy shares on the recent pull back. If the stock reaches $110/share then I would consider selling my position that I acquired on the recent pullback.

Growth in Wealth Management

CIBC is primarily focused on the Canadian retail and business banking markets and has recently indicated that they will seek growth through acquisition in the wealth management arena. With the Canadian retail and business banking markets becoming hyper competitive it will be difficult for CIBC and other banks to increase profits from this market. Less notably, Credit and Saving Unions have surged forward in the past couple of years, presenting challenges to Canadian banks at a regional level. In Canada, there have been flurries of mergers and acquisitions within the Credit and Saving Union industry that don’t present a significant risk to Canadian banks, but are surely making the retail banking industry extra competitive.

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