With earnings season just around the corner, I thought now would be a good time to look at what the market is expecting from Commonwealth Bank of Australia (ASX: CBA) next month.
Australia's largest bank is scheduled to release its full year results on 12 August 2020. Here's what to look for:
Cash earnings.
According to a note out of Goldman Sachs, it is expecting Commonwealth Bank's FY 2020 cash earnings from continued operations (pre-one-offs) to come in at $7,815 million. This will be an 8% decline on the prior corresponding period.
As a comparison, the consensus analyst estimate is for cash earnings of $7,620 million in FY 2020.
Net interest margin.
Goldman is expecting the bank to report a net interest margin of 2.1%.
Its analysts commented: "While CBA's 3Q20 NIM was lower than its 1H20 average, we think the operating environment on the margin front will have been supportive for CBA and the sector more broadly in 4Q20."
It notes favourable deposit pricing trends, supportive funding spreads, and the introduction of the Term Funding Facility by the RBA.
Final dividend.
One of the hottest topics in investment communities right now is what (if any) dividend Commonwealth Bank will pay for the second half.
Goldman Sachs is forecasting a 100 cents per share fully franked final dividend. This will be a 56.7% reduction on last year's final dividend. The consensus analyst estimate is for a slightly higher dividend of 119 cents per share.
Commenting on the final dividend, Goldman Sachs said: "We think CBA remains well-placed to pay a final ordinary DPS of A100¢, implying a c. 50% 2H20 payout, with a 1.5% discounted 2H20E DRP."
This is thanks to its superior capital position, strong levels of provisioning, and its healthy level of pre-provision profitability.
However, the broker warned: "We expect the market to focus heavily on CBA's dividend and any capital management commentary at the upcoming result and concede there is a wide range of potential outcomes with respect to both the size of the dividend and level of the DRP."
Looking ahead, the broker is forecasting a dividend of 303 cents per share in FY 2021. This represents a fully franked forward 4.2% dividend yield.
Should you invest?
While Goldman Sachs has retained its sell rating and $65.00 price target on Commonwealth Bank's shares, I still see value in them and would be a buyer at the current level.
Its shares may not be as cheap as Australia and New Zealand Banking GrpLtd (ASX: ANZ) and the rest of the big four, but I think it deserves to trade at a premium due to the quality of its business.
