Canadian Imperial Bank of Commerce (TSE:CM) (NYSE:CM), also known as CIBC, is one of the “Big Six” banks in Canada. It recently reported its Q3 earnings, which made the stock tumble by a little over 3%. While “over 3%” may not sound too big, it’s a noticeable move for a slow-moving stock like CM. The stock was already underpriced, in our opinion, but now it’s even more of a bargain after the latest sell-off. Therefore, we are bullish on CM stock.
Why is CM Stock Low?
CM stock was already not performing exceptionally well this year, likely due to tough macroeconomic conditions, but the recent earnings report made things worse. Essentially, CIBC missed EPS expectations by almost 10%, and its adjusted EPS fell by 17.8%. While those results don’t inspire bullish thoughts, it’s important to look forward in the investing world.
CM Stock Looks Cheap
CM currently has a P/E ratio of 10.45x, which looks cheap. However, we’re more interested in the forward estimates. CM is expected to report EPS of C$6.80 and C$6.84 in Fiscal 2023 (ending October 2023) and Fiscal 2024. While the 2023 forecast implies a 3.6% decline, and the 2024 estimate suggests a meager 0.7% growth rate, the important thing to note is that these estimates imply forward P/E ratios of 7.9x and 7.8x for 2023 and 2024, respectively.
A P/E ratio of 7.9x means that the stock’s earnings yield will be 12.66% — a yield that we’re more than happy with. It’s also reasonable to assume that CIBC’s EPS will slowly trend higher in the future as it has historically, especially if the Canadian economy grows over time. Fiscal 2023 is likely just a rough patch due to rising interest rates, and it’s very possible that things will normalize over the next few years when (if) inflation comes back down.
Will CM Stock Go Up?
According to analysts, CM stock comes in as a Hold based on three Buys, three Holds, and one Sell given in the past three months. The average CM stock price target of C$64.38 implies 18.9% upside potential.
The Takeaway
Here’s the takeaway. Sure, CIBC had a rough quarter. However, CM stock is trading at a low valuation that can potentially give you a ~12.7% forward earnings yield, and it’s reasonable to assume that the company can meet analysts’ estimates because it does so on average. Plus, the stock sports a juicy 6.4% dividend yield and 18.9% upside potential, according to analysts, making it worth considering.
Also read: Canadian Bank Earnings Roundup — Which Bank Performed Best?
