Here's what this broker is saying about CBA shares

Are CBA shares heading higher or lower from here?

| More on:
Confident male executive dressed in a dark blue suit leans against a doorway with his arms crossed in the corporate office

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

When it comes to the banking sector, Commonwealth Bank of Australia (ASX: CBA) shares are a popular option for investors.

And it isn't hard to see why. Thanks to its position as the nation's largest and most dominant bank, CBA's shares have outperformed the rest of the big four by a decent margin over the last decade.

During this time, its shares have generated a respectable average annual total return of approximately 7% per annum.

This would have turned a $10,000 investment into almost $20,000 today.

But where are the banking giant's shares going from here? Let's see what one broker thinks.

Where next for CBA shares?

According to a recent note out of Citi, its analysts are not feeling overly positive about the bank's shares.

Due partly to their belief that net interest margins (NIMs) are now on a downward trajectory, the broker has put a sell rating and $82.50 price target on its shares.

Based on the current CBA share price of $99.62, this implies a potential downside of approximately 17% for investors over the next 12 months.

What did the broker say?

Citi recently boosted its earnings estimates and valuation to account for a couple more rate increases from the Reserve Bank. But even after doing this, it still feels that NIMs are heading lower due to mortgage competition.

In light of this, the broker doesn't appear to believe that CBA shares deserve to trade at such a premium to the rest of the big four. It explains:

We upgrade cash earnings by +5%/+8% for FY24/FY25E as we raise NIM assumptions by+ 6/+9bps. With RBA turning increasingly hawkish in the last two months, Citi Economics team forecasts two additional 25bpts cash rate hikes from current 4.1% level to reach terminal rate of 4.6% by Aug-23. Rate cuts are expected to begin early next year to reach 3.35% by Jun-24.

Reflecting this, we revise our NIMs assumption to account for benefit from at-call deposits re-repricing as well as replicating portfolio (as yield curve moves up). This is slightly offset by increased deposit beta and elevated at-call-to-TD switching, as deposit competition becomes more intense. Overall, our half yearly NIMs follow a decreasing trajectory, reaching 1.92% by 2H25E from current 1H23 2.10%, with asset (mortgage) competition offsetting the liability benefits.

Citigroup is an advertising partner of The Ascent, a Motley Fool company. Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on Bank Shares

A businessman presents a company annual report in front of a group seated at a table
Bank Shares

The future of the Big 4 banks: key takeaways from Macquarie's 2025 Banking Symposium

What lies ahead for the big 4 banks?

Read more »

A woman in a bright yellow jumper looks happily at her yellow piggy bank.
Bank Shares

CBA shares are down 9% from their peak. Is it time to buy?

CBA shares are getting cheaper, but are they cheap yet?

Read more »

A young woman sits with her hand to her chin staring off to the side thinking about her investments.
Bank Shares

The pros and cons of buying NAB shares in August

Is it a good time to invest in the major bank? Here’s my view.

Read more »

A young woman sits at her desk in deep contemplation with her hand to her chin while seriously considering information she is reading on her laptop.
Dividend Investing

Are CBA shares still a good buy today for passive income?

Looking to earn passive income from ASX dividend stocks? Here’s my take on CBA shares.

Read more »

Shocked office worker staring at computer screen with colleagues working in the background.
Bank Shares

The ASX bank share beating CBA in 2025

Many investors might not realise this smaller bank stock is leading the pack this year. 

Read more »

man thinking about whether to invest in bitcoin
Bank Shares

Here's what needs to happen for the CBA share price to try and reach $200

What could drive the CBA share price higher?

Read more »

A young woman sits at her desk in deep contemplation with her hand to her chin while seriously considering information she is reading on her laptop.
Bank Shares

Why now could be an opportune time to sell CBA shares

A leading expert offers his verdict on the outlook for CBA shares.

Read more »

A man holding a cup of coffee puts his thumb up and smiles while at laptop.
Bank Shares

The Westpac share price is a buy – UBS

The broker is optimistic on Westpac shares.

Read more »