Macquarie Group Ltd (ASX: MQG) analysts have moved Commonwealth Bank of Australia (ASX: CBA) shares to overweight as its valuation improves.
The CBA share price falls
As can be seen above, shares in Commbank and its rival Westpac Banking Corp (ASX: WBC) have been under the pump over the past six months. Each bank has underperformed the market or S&P/ASX 200 (Index: ^AXJO) (ASX: XJO) by more than 9%, not including dividends.
However, Macquarie analysts believe the valuation of Commbank has become more tempting in recent months, at least on a relative basis.
"Banks now trade at a 19% PE discount to the market," Macquarie strategists were reported writing by Fairfax. "This is too much when the relative earnings growth differential is small (~3.5%) and when earnings revision momentum is in favour of banks."
Currently, the average ASX 200 company trades at nearly 17 times this year's profits, according to Morningstar. That compares to Commbank shares which trade at 14 times profit.
Looking ahead, CBA shares are tipped to yield dividends equivalent to 5.7% fully franked and analysts expect modest profit growth as the bank continues to build efficiencies.
Foolish Takeaway
The recent decline in ASX bank shares could be a result of their lacklustre growth expectations, slowing house prices or forecasts for higher interest rates. However, in my opinion, CBA shares are too expensive to justify a buy rating at today's prices.
Sure, we may miss out on the chance to receive a decent dividend in the near future. However, there are many other companies on the ASX vying for a spot in your portfolio. Some of which trade at much more compelling valuations right now.
