In afternoon trade the Commonwealth Bank of Australia (ASX: CBA) share price is down 2.5% to $59.22.
This means the banking giant's shares are now down 38% from their 52-week high.
Unfortunately for shareholders, one leading broker still believes they could be heading lower from here.
Who is bearish on Commonwealth Bank?
This morning analysts at Goldman Sachs retained their sell rating but lifted the price target on the company's shares slightly to $56.40.
According to the note, Commonwealth Bank's third quarter cash earnings of $1.3 billion is running well short of the broker's second half expectations.
Though It acknowledges that this weakness has been driven entirely by higher provisions for bad and doubtful debts because of the coronavirus pandemic.
Excluding one offs, its profits were running ahead of its estimates. This was driven by better than expected net interest income (NIM) growth and partly offset by higher expenses.
So why is Goldman Sachs bearish?
Goldman Sachs' main issue with Commonwealth Bank is its valuation. It doesn't believe the bank deserves to trade at such a premium to National Australia Bank Ltd (ASX: NAB) and the rest of the big four.
Goldman notes that Commonwealth Bank's pro-forma CET1 ratio, adjusted for announced but not yet completed asset sales, will fall 45 basis points half on half. This will bring its pro-forma CET1 advantage over its peers to <1%, from >1.5% at the end of the first half.
"Therefore, while we remain of the view that the CBA balance sheet looks the most defensive of the major Australian banks (provisions, capital, funding etc), we cannot justify the 25% 12-mo forward PER premium it trades on versus peers (vs. 14% 15-yr av.) and we stay Sell," it explained.
Its preferred pick in the sector remains NAB. Goldman has a conviction buy rating and $17.50 price target on its shares.
