Canadian Imperial Bank of Commerce (CIBC)

Doug Young, CFA, Analyst

CIBC Bank USA provides a potential growth catalyst
Dividend yield of ~4.8%, the highest among the Big 6 banks
Attractive valuation

CIBC is one of Canada's Big 6 banks, with operations focused in Canada and the United States. The bank has been making meaningful investments in its Canadian banking franchise, hiring mortgage advisors (resulting in industry-leading mortgage growth) and investing in technology and distribution platforms.

Last year, the bank acquired PrivateBancorp (renamed CIBC Bank USA), which provides a potential growth catalyst. The US operations beat consensus expectations in the last two quarters, and we believe this solid performance could continue if the bank realizes synergies from the acquisition as planned. Management is focused on developing relationships with clients on both sides of the border, so we believe the acquisition provides CIBC with access to a client pool it did not have before.

In our view, it is trading at an attractive valuation—9.7x forward P/E versus a historical forward multiple of 9.9x and the peer average of 11.0x. We believe it could benefit from multiple expansion if management's plan for CIBC Bank USA plays out.

With that being said, we still have concerns with the name. There are integration risks with CIBC Bank USA if management cannot capture the expected synergies. The bank has also received a notice of reassessment from the Canadian Revenue Agency disallowing certain deductions taken by the bank in the past; this potential reassessment could loom for a number of years. In our view, these concerns are already baked into expectations.

CIBC is our second pick among the Canadian banks, behind Scotiabank. Its share price is down ~10% in the year to date, but we believe it could play catch-up in 2018. Our rating is Buy–Average Risk, with a target price of C$134.