'We see CBA (ASX:CBA) underperforming': Why this broker is avoiding Commonwealth Bank in 2022

JP Morgan reckons there are better alternatives in the ASX banking universe right now.

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The Commonwealth Bank of Australia (ASX: CBA) share price opened the session down on Tuesday. At the time of writing, CBA shares are $93.66 each, less than 0.1% below yesterday's closing price of $93.74.

The CBA share price has been on a fairly bumpy ride these past few months, having collapsed from a closing high of $110.13 back in November.

Since then, the bank's shares hit a bottom of $93 in December and made an attempt at recovery. They peaked at $103 before tumbling once more. As of today, the CBA share price is now trading at 6-month lows.

Certainly, the team at JP Morgan are cautious about the CBA share price. Its analysts prefer other names in the ASX banking universe.

The broker is bearish on its outlook for CBA. In a recent note, it urges its clients to sell CBA shares or at least remain underweight in their portfolio allocations. Let's take a look.

Why is JP Morgan underweight on CBA?

Analysts at the investment bank are bearish on CBA given its outlook relative to the other major banks. The broker reckons whilst revenue will be strong, variable costs could offset the carry-through to profit.

"We forecast revenue growth to be towards the top end of peers in FY23/24; however ongoing cost investment will likely cap pre-provision profit growth to similar levels to the other majors," the broker said.

JP Morgan estimates a net interest income of $19.1 billion in FY22 and $19.55 billion in FY23, representing a 2.35% year on year growth.

At the same time, however, the broker sees this carrying through to just $9.11 billion in cash net profit after tax (NPAT) in FY22, then decreasing to $9 billion cash NPAT in FY23. That's a decrease of 1.2% over the year.

The broker also reckons that CBA's net interest margin (NIM) will contract over the coming years – in line with other banks – decreasing from 2.03% in FY21 to 1.87% In FY22. It also expects a further drop to 1.8% in FY23.

Not only that, the bank's capital position, a smaller size than its peers, is also a risk to the company's earnings outlook in 2022.

"Further capital management is likely in FY23, supported by its residual franking balance," the broker said. "However, the surplus capital position is smaller than peers on a market-cap adjusted basis."

As such, JP Morgan reckons CBA will touch $90 per share by December. Its valuation reflects the present value of dividends paid to shareholders through to FY24 and the present value of "a multiple of FY24E tangible book value".

At the time of writing, this implies a downside potential of around 3% or approximately $3.50 per share.

"Given these factors, we see CBA underperforming our coverage universe," the broker said.

CBA share price summary

In the last 12 months, the CBA share price has held gains and climbed more than 10% in that time.

This year to date, things aren't so rosy with the CBA share price slipping into the red. It's down almost 8% since January 1 after tanking 4% this past week.

The chart below shows CBA's performance against the other Australian majors in the last 12 months.

TradingView Chart

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