Key Morningstar Metrics for Canadian Imperial Bank of Commerce
- : C$117.00Fair Value Estimate
- : ★★Morningstar Rating
- : NarrowMorningstar Economic Moat Rating
- : MediumMorningstar Uncertainty Rating
What We Thought of Canadian Imperial Bank of Commerce’s Earnings
CIBC CM reported strong second-quarter results, with adjusted earnings per share of C$2.54, up 24% year over year. The bank also announced a definitive agreement to sell its 91.7% stake in CIBC Caribbean to Bank of NT Butterfield & Son for USD 1.6 billion. Shares fell approximately 4.5% on the day.
Why it matters: The divestiture will allow CIBC to redeploy capital toward its core Canadian and US banking operations, thereby improving the quality of its business mix. Consideration is 61% cash and 39% Butterfield stock, with CIBC retaining approximately 22% of the combined entity. The deal is subject to regulatory approval and expected to close in the first half of 2027.
- The deal is priced at 1.06 times the tangible book value of CIBC Caribbean, which we view as fair, though the market may have expected a higher multiple. Caribbean franchises trade at structural discounts due to regulatory fragmentation, heavy compliance burdens, and tourism-concentrated economies. Most Canadian peers have already exited the region ahead of CIBC.
- We note this deal structure looks better than the failed transaction of selling CIBC’s Caribbean business to GNB Financial Group, which the bank initially announced in 2019 but had to cancel due to failure to obtain regulatory approval in 2021.
The bottom line: We expect to increase our fair value estimates of C$117/USD 85 for narrow-moat CIBC by around a mid-teens percentage and to lower our Uncertainty Rating to Low from Medium. We continue to view shares as overvalued.
- The valuation increase is primarily driven by a reduction in our cost of equity assumption to 8.6% from 9.5%, reflecting an updated view of CIBC’s business mix and cyclicality. In addition, we expect to increase our near-term capital markets fee income forecast on the backdrop of strong year-to-date results.
- The Uncertainty Rating change reflects both qualitative and quantitative factors, including a more favorable assessment of CIBC’s domestic earnings quality.
