Commonwealth Bank of Australia (ASX: CBA) shares surged some 27% between October 2020 and February 2021.
Since 2015, however, the CBA share price has typically struggled to make it over the $90 level, and more often than not, tended to trade in a sideways fashion. With the CBA share price currently fetching $86.60, what can investors expect from Australia's biggest bank?
Australia's economic recovery well underway
Australia's economic recovery is well underway and stronger than expected, according to the Reserve Bank of Australia's April monetary policy decision. The statement from the RBA governor Dr Philip Lowe said:
The unemployment rate fell to 5.8 per cent in February and the number of people with a job has returned to the pre-pandemic level. GDP increased by a strong 3.1 per cent in the December quarter, boosted by a further lift in household consumption as the health situation improved. The recovery is expected to continue, with above-trend growth this year and next. Household and business balance sheets are in good shape and should continue to support spending.
Looking over at the property market, he also commented:
Housing markets have strengthened further, with prices rising in most markets. Housing credit growth to owner-occupiers has picked up, with strong demand from first-home buyers. In contrast, investor credit growth remains subdued. Given the environment of rising housing prices and low interest rates, the Bank will be monitoring trends in housing borrowing carefully and it is important that lending standards are maintained.
CBA's half-year results presentation also brights light to a "relatively well-positioned" Australia and New Zealand economy, highlighting factors such as significant accumulated household savings, a strong recovery in the labour market, high consumer and business confidence and an improved outlook for housing.
Arguably, the RBA's relatively positive commentary should spell good news for CBA's operations, particularly business and home lending.
Earnings eyeing full recovery
CBA's half-year results highlighted a strong rebound in earnings with cash net profit after tax down 10.8% to $3,886 million compared to 1H20. If COVID-19 impacts and remediation costs were excluded, cash NPAT would have been broadly flat.
The bank's Common Equity Tier 1 (CET1) capital ratio has improved from 11.7% in 1H20 to 12.6% in 1H21.
This year's interim dividend is less, at $1.50 per share compared to the $2.00 per share in 1H20.
Overall, the CBA share price is almost back to where it was before the pandemic, with the bank delivering similar profit levels and a higher CET1 ratio but paying a more reserved percentage of its earnings as a dividend.
What do brokers think about the CBA share price?
Two brokers have updated their ratings and target prices for the CBA share price in April.
On 1 April, Credit Suisse retained a neutral rating with an $85 target price. Its commentary highlighted the reduction in loan repayment deferrals, noting that CBA had experienced a 76% reduction in total deferrals to $2.3 billion. Its deferrals are predominately mortgages with only $147 million of SME deferrals.
On the same day, Morgan Stanley was underweight on CBA shares with a $79 target price. It noted that system housing loan growth had picked up to an annualised rate of around 5.1% in February. Meanwhile, further data led the broker to believe that the surge in deposits has ended.
Morgan Stanley believes that the high levels of liquidity, ongoing deposit mix shift and lower cost of wholesale funding supports the near-term outlook for CBA shares.
Overall, broker target prices aren't pointing to much upside for CBA shares. However, whether this means the CBA share price will not be able to break through the $90 barrier over the near term remains to be seen.
