Inside the Market’s roundup of some of today’s key analyst actions
Following “a solid quarter with strength in revenues, capital, and execution,” Canadian Imperial Bank of Commerce (
) deserves higher earnings per share estimates and valuation, according to RBC Dominion Securities analyst Darko Mihelic.
“Two things in particular stood out for us this quarter: (1) most of the U.S. CRE issues have been resolved (early), and (2) the DRIP comes off in Q3/24,” he said in a research report. “We remove CM’s discounted DRIP starting in Q3/24 which boosts our core EPS estimates slightly, and change our PCL estimates which essentially has a bounce in earnings power. It is still possible that PCLs spike from here so we retain some caution, but all the same we move our target multiple a little higher.”
CIBC shares rose 2.2 per cent on Thursday after it reported first-quarter adjusted earnings per share of $1.81, higher than both Mr. Mihelic’s $1.70 estimate and the consensus projection on the Street of $1.66. The beat came from stronger-tha- expected results in all segments except for U.S. P&C.
“Corporate results were also particularly strong relative to our expectations but even excluding Corporate, we believe CM had a good quarter,” he said.
“We assume improved revenues in Canadian Commercial Banking and lower impaired provisions for credit losses (PCLs) in the U.S., partially offset by reduced estimates for capital markets revenue and corporate earnings, increasing our earnings expectations modestly. We now assume 1 more quarter of the discounted DRIP (we previously assumed it would continue for the rest of fiscal 2024) which also boosts our core EPS estimates higher.”
While Mr. Mihelic said “it is too early to claim victory on PCLs (across all loan categories) as the economy, interest rates, and many other factors are still creating a lot of uncertainty,” he raised his target for CIBC shares to $68 from $63, reiterating a “sector perform” rating. The average on the Street is $65.75, according to LSEG data.
Elsewhere, other analysts making target adjustments include:
* Scotia’s Meny Grauman to $69 from $67 with a “sector outperform” rating.
“CIBC kicked off F2024 with a peer-leading beat that built on earnings momentum that already began to build for the bank last year,” he said. “Across pretty much every metric CIBC delivered a strong performance including a 10-per-cent EPS beat, a 7-per-cent PTPP beat, positive operating leverage, and margin expansion in both Canada and the US. The capital story also impressed as the bank delivered a CET1 ratio of 13.0 per cent versus the Street at 12.6 per cent, and during the call announced that it would turn off its discounted DRIP after paying its Q2 dividend at the end of April (joining similar announcements at BMO and RY among the large banks). Credit missed us but only by a very small margin and was essentially in line with the Street. This line item had been a spoiler last year, but was drama free in Q1. Although the bank continued to see elevated impaired loss provisions in its U.S. CRE portfolio, management noted that it is through the majority of substantive issues in the U.S. office portfolio, and has not seen any losses over the past 12-months in its multi-family portfolio in either Canada or the U.S..”
* Desjardins Securities’ Doug Young to $66 from $64 with a “hold” rating.
“Adjusted pre-tax, pre-provision (PTPP) earnings and cash EPS beat our estimates. It was a good quarter, with the beat driven by higher NIMs, higher non-interest revenue and lower expenses. However, we find the stock’s lukewarm response surprising and interesting,” said Mr. Young.
* Canaccord Genuity’s Matthew Lee to $67 from $64 with a “hold” rating.
CANADIAN IMPERIAL BANK OF COMMERCE
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