On Wednesday, most major North American stock markets closed with minor losses.
In the U.S., the Dow Jones Industrial Average gained 0.04 per cent, while the S&P 500 index declined 0.13 per cent, and the Nasdaq composite index lost 0.37 per cent.
In Canada, the S&P/TSX composite index fell 77 points, or 0.49 per cent. There were 54 securities in the TSX Index that advanced, 190 securities declined in value, and six stocks closed the day unchanged.
Year-to-date, the TSX Index is up 1.67 per cent year. In the U.S., the Dow Jones Industrial Average is up 6.05 per cent year-to-date, the S&P500 index is up 6.67 per cent, and the Nasdaq composite has rallied 12.81 per cent.
On today's TSX Breakouts report, there are just 13 stocks on the positive breakouts list (stocks with positive price momentum), and 49 stocks are on the negative breakouts list (stocks with negative price momentum).
The second quarter earnings season for Canadian banks will kick off in three weeks. Bank stocks have failed to deliver meaningful returns for investors so far this year. Among the 'Big 6' banks, Royal Bank of Canada leads the pack with a year-to-date gain of just 2.1 per cent. Featured today is a bank stock that appeared on Wednesday's negative breakouts list - Canadian Imperial Bank of Commerce (CM-T).
A brief outline is provided below that may serve as a springboard for further fundamental research.
The company
CIBC is one of Canada's largest financial institutions with approximately 11-million clients worldwide.
Before the market opened on Feb. 23, the company reported better-than-expected first quarter financial results. Adjusted earnings per share came in at $2.89, up from $2.55 during the same period last year and surpassed the consensus estimate of $2.57. The share price rallied 1 per cent that day.
The company will release its second quarter financial results on May 25. The Street is expecting earnings per share of $2.57.
Today, CIBC and PrivateBankcorp announced an increase of $3 (U.S.) in cash per share to $27.20 from $24.20. Investors should keep in mind that the proposed merger with PrivateBankcorp, if completed, is currently offering PrivateBancorp shareholders $27.20 (U.S.) in cash and 0.4176 of a CIBC common share for each PrivateBankcorp share held. Many U.S. shareholders may opt to sell their CIBC shares upon closing of the proposed transaction. This anticipated future selling pressure could create a temporary ceiling on the stock price.
Returning capital to shareholders
Management has remained committed to returning capital to its shareholders, announcing dividend increases for the past two quarters. In February, the company announced a 2.4 per cent increase to its dividend, raising its quarterly dividend to $1.27 per share from $1.24 per share. This equates to a yearly dividend of $5.08 per share, or an annualized dividend yield of 4.65 per cent.
Last quarter, the adjusted dividend payout ratio was 45.8 per cent, suggesting there is room for further dividend increases.
On March 10, the company announced it received approval for a new normal course issuer bid. Under its previous share buyback program, the company repurchased 3,197,200 shares at an average price per share of $87.83.
Analysts' recommendations
The company is widely covered by analysts on the Street. The stock currently has 6 buy recommendations, eight hold recommendations, and one 'underweight' recommendation from the analyst at Barclays. He has maintained an 'underweight' recommendation on the stock since early 2013.
Revised recommendations
This month, Doug Young, the analyst at Desjardins Securities, trimmed his target price to $125 from $126. Meanwhile, Stephen Ellis, the analyst from Morningstar, bumped his recommendation to a 'buy' from a 'hold'.
After the company reported its first quarter earnings in February, there was a flurry of minor revisions by analysts. For instance, analyst Mario Mendonca from TD Securities raised his target price to $125 from $120. Sohrab Movahedi from BMO Capital Markets increased his target price by $10 to $118. Sumit Malhotra from Scotia Capital raised his target price to $126 from $124, and Gabriel Dechaine, the analyst from National Bank Financial, raised his target price to $130 from $126.
Financial forecasts
The Street is forecasting earnings per share of $10.71 for 2017, up from $10.22 reported in 2016, with earnings per share anticipated to rise to $10.97 in 2018. Forecasts have been relatively stable, with minor positive revisions. For instance, four months ago, the consensus earnings per share estimates were $10.71 for 2017 and $10.67 for 2018.
Valuation
The stock is trading in-line with historical levels. According to Bloomberg, the stock is trading at a price-to-earnings multiple of 9.9 times the 2018 consensus estimate, which is in-line with its three-year historical average (at 10.1 times) and its 10-year historical average (at 9.7 times).
The average 12-month target price is $124.46, implying the share price has 14 per cent upside potential over the next year. Individual target prices range from a low of $117 to a high of just over $146. Individual target prices provided by 14 firms are as follows in numerical order: two at $117, two at $118, $119, two at $124, two at $125, $126, $128, $130, $131, and just over $146.
Insider transaction activity
Looking back over the past three months, there have been no reported buying or selling activities by insiders. However, in January, Victor Dodig, the president and chief executive officer, exercised his options on January 5, and sold the corresponding number of shares, 23,711 shares, that same day at an average price per share of $111.93, leaving a remaining portfolio's position of 16,181 shares.
Chart watch
Technically, the stock is nearing oversold territory with a relative strength reading of 32. Generally, a reading at or below 30 indicates an oversold condition.
Should the share price continue to retreat, there is downside support between $107 and $108, which is close to its 200-day moving average (at $107.81). Over the past year, the 200-day moving has been a solid support level with the stock price holding above this level. Failing that, there is technical support around $105.
On a rebound, the stock price has initial overhead resistance around $115, near its 50-day moving average (at $115.57). After that, there is resistance around $120.
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The Breakouts file is a technical analysis screen intended to identify companies that are technically breaking out. In addition, this report highlights a company's dividend policy, analysts' recommendations, and provides a brief technical analysis for a security to provide readers with more information.
If a stock appears on the positive breakouts list, this indicates positive price momentum, and that a company may be worthwhile for investors to look at the fundamentals in order to determine if the recent price strength is warranted and will continue. If a security appears on the negative breakouts list, this indicates negative price momentum, and may be indicative of either deteriorating fundamentals or perhaps indicates a buying opportunity.
Securities screened are from the S&P/TSX composite index, the S&P/TSX Small Cap index, as well as Canadian small cap stocks outside of these indexes that have a minimum market capitalization of $200-million.
A technical analysis screen does not replace fundamental analysis, but can help identify companies worth having a closer look at.