Canadian Imperial Bank Of Commerce (TSX:CM) Raises Fresh Capital, Is The Stock Still Cheap?

Canadian Imperial Bank of Commerce (TSX:CM) has been active in capital markets, issuing multiple fixed income securities, including new notes, preferred shares and a large US$500 million Limited Recourse Capital Notes offering.

See our latest analysis for Canadian Imperial Bank of Commerce.

Against this backdrop of fresh capital issuance, Canadian Imperial Bank of Commerce’s share price has gained 13.08% over the past 90 days and 32.06% year to date, while the latest close of CA$166.68 sits alongside a 1 year total shareholder return of 74.07%. This points to solid recent momentum on top of longer term compounding.

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Canadian Imperial Bank of Commerce’s share price now sits above the average analyst target, yet still screens at an estimated 23.10% discount to intrinsic value. So where does fair value really lie in that gap?

Preferred P/E of 16.2x: Is it justified?

On current numbers, Canadian Imperial Bank of Commerce trades on a P/E of 16.2x, which sits above the North American banks industry average of 12.3x but below the peer group average of 19x, while also screening at an estimated 23.1% discount to one fair value estimate.

The P/E ratio compares the current share price to earnings per share and is a common way investors gauge how much they are paying for each dollar of profit in a mature sector like banking. For Canadian Imperial Bank of Commerce, this multiple reflects a business with earnings that have been growing, but with forecasts that point to more modest profit growth ahead.

Over the past year, earnings growth of 25% has outpaced both the wider banks industry and the stock’s own 5 year average growth rate of 9.4% per year. Net profit margins of 32.5% are higher than last year’s 29.6%. At the same time, forecasts indicate earnings growth of about 3% per year and a return on equity that is considered low at 14.9% currently and expected to stay below 20% in three years. That mix of solid recent growth and more moderate expectations helps explain why the P/E is richer than the broader industry but still below the peer average of 19x and close to an estimated fair P/E of 17.7x that the market could gravitate toward.

Explore the SWS fair ratio for Canadian Imperial Bank of Commerce

Result: Price-to-Earnings of 16.2x (ABOUT RIGHT)

However, the Canadian Imperial Bank of Commerce’s premium P/E and strong recent share price performance could be vulnerable if earnings growth slows or if credit conditions become less supportive.

Find out about the key risks to this Canadian Imperial Bank of Commerce narrative.

Another view on Canadian Imperial Bank of Commerce's value

While the P/E story suggests Canadian Imperial Bank of Commerce is trading near a fair ratio of 17.7x, the SWS DCF model presents a different perspective, with an estimated future cash flow value of CA$216.76 per share versus the current CA$166.68, implying the stock is undervalued. Which signal should carry more weight for you?

Look into how the SWS DCF model arrives at its fair value.

Simply Wall St performs a discounted cash flow (DCF) on every stock in the world every day (check out Canadian Imperial Bank of Commerce for example). We show the entire calculation in full. You can track the result in your watchlist or portfolio and be alerted when this changes, or use our stock screener to discover 5 high quality undervalued stocks. If you save a screener we even alert you when new companies match - so you never miss a potential opportunity.

Next Steps

Comfortable with the positive tone around Canadian Imperial Bank of Commerce but want to check the evidence for yourself before it settles? Act while the data is fresh and review the 4 key rewards

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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