CIBC Just Hit a Revenue Record — Here’s Why the Stock Still Looks Undervalued

By Joey Frenette at The Motley Fool Canada

Shares of CIBC (TSX:CM) are coming off an impressive quarter, with record revenue in the books and now, fresh all-time highs just north of $147 per share. Undoubtedly, with the explosive rally has come a far more modest dividend yield than most Canadian income investors are likely accustomed to. Indeed, CIBC has yielded far more than 5% through the years. Today, with shares spiking higher for the month of April, the stock now yields 2.9%.

That’s low, not just for CIBC’s standards, but Canada’s Big Six. Of course, if you want a swollen yield, perhaps it’s better to look elsewhere within the banking scene or maybe even the pipelines. If you’re looking for capital gains and big dividend growth, though, I think there are ample reasons to stay aboard as momentum investors become more interested in the name rather than income investors.

CIBC’s a much better bank. It deserves a higher price tag

The domestic mortgage-heavy bank has certainly come a long way since its days as a “discounted” number-five bank. With a market cap of $136 billion and a historically rich 15.35 times trailing price-to-earnings (P/E) multiple, it’s a pricey time to be a CIBC bull. However, given the fundamental shift that’s happened behind the scenes, I think a higher multiple is justified as CIBC stock looks to top $150 per share in the coming weeks and months.

Of course, with a high multiple and an incredible first quarter of earnings results, it’s going to be tough to raise the bar even further going into the second and third quarters.

Indeed, the conditions need to be picture-perfect for quarterly revenue to rise 15%. And while the high watermark in revenue growth may already be in the books, I’d argue that the stock still has what it takes to reward investor for their patience for the next two to three years.

So, why bother with a historically discounted bank stock that’s now going for more of a middle-of-the-pack multiple?

Provisions for credit losses have come down quite a bit, and with CIBC’s digital transformation in full swing, with margin gains and significant momentum behind the personal and business banking division, CIBC has shown that it has what it takes to keep up with the very best in the Canadian banking scene.

Looking ahead, I think CIBC is becoming more of an AI-savvy bank stock than just another bank with more than its fair share in Canadian mortgages. Of course, AI efficiencies are an opportunity for just about every bank, but when it comes to CIBC, I like management’s proven ability to execute. Add the U.S. growth prospects, which are quite new for CIBC, and I wouldn’t at all be surprised if the market rewards shares of CM with a slight premium before the year’s close.

Of course, we’ll have to see how the coming results stack up. It’s going to be a tougher quarter-over-quarter comparable, to say the least. Either way, I think CIBC is doing just about everything right. And as it continues moving fast, I see the current rally having stronger legs than investors might give the stock credit for.

The post CIBC Just Hit a Revenue Record — Here’s Why the Stock Still Looks Undervalued appeared first on The Motley Fool Canada.

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Fool contributor Joey Frenette has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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