The Commonwealth Bank of Australia (ASX: CBA) share price has made a resurgence back to pre-COVID levels. As the vaccine roll-out continues, economic activity picks up and confidence increases, what's the outlook for the CBA share price?
Solid half-year results point to a cautious recovery
CBA's half-year results came in ahead of market expectations for the six months ended 31 December 2020. The company delivered a 0.5% decline in operating income of $11,961 million, driven by COVID-19 impacts and a 10 basis point reduction in net interest margins to 2.01%.
Earnings were slightly lower on the prior corresponding period with cash net profit after tax from continuing operations down 10.8% to $3,886 million. The bank noted that if COVID-19 impacts and remediation costs were excluded, cash profit would have been broadly flat.
A key highlight from CBA's half-year results was the significant decline in loan impairments and bad debts. The bank recorded a loan impairment expense of $822 million, higher than the prior corresponding period but down by more than 50% from 2H20.
The number of home loans in deferral has also experienced a significant decline from 145,000 loans with a balance of $51 billion at the end of FY20 to approximately 25,000 home loans with a balance of $9 billion at the end of January.
What are big brokers thinking about the CBA share price?
Citi is neutral rated on the CBA share price. The broker highlights the bank's recent buy now, pay later (BNPL) product launch as a move to defend its share of the millennial market and challenge BNPL leader, Afterpay Ltd (ASX: APT). Citi describes this move as a conundrum for the Reserve Bank of Australia, which has so far left the BNPL industry largely unregulated.
Overall, the broker didn't provide any updated commentary with regards to CBA earnings or the broader banking industry. It retained a target price of $82.50, or a downside of 3.59% compared to CBA's closing price on Monday.
Morgan Stanley retained an underweight rating for the CBA share price. An underweight rating can be defined as a recommendation for investors to weigh a stock less heavily in their portfolios with the belief that it will underperform the market.
Despite an underweight rating, Morgan Stanley's commentary was largely neutral. The broker noted that major banks have maintained strong capital levels and forecast buybacks to commence at CBA in FY22.
Morgan Stanley retained a $79 target price or a downside of 7.68% given CBA's closing price of $85.57 on Monday.
