Commonwealth Bank of Australia (ASX: CBA) shares are having a solid session on Tuesday.
In morning trade, the banking giant's shares are up 1.3% to $102.64.
This follows the release of the company's first-quarter update, which has gone down well with investors.
Image source: Getty Images
CBA shares rise on Q1 update
As we covered here earlier, CBA released its first quarter update this morning.
For the three months ended 30 September, Australia's largest bank reported flat operating income of $6.8 billion and a 1% lift in cash net profit after tax to $2.5 billion.
CBA's profit growth was underpinned by a 0.5% increase in net interest income thanks to 1.5 additional days in the quarter and volume growth. This was partly offset by lower net interest margins from continued competitive pressure in deposits, as well as customers switching to higher-yielding deposits.
Why are its shares rising?
While the result itself was relatively flat on paper, there were key aspects that came in better than expected.
According to a note out of Citi, its analysts believe that CBA's update implies a quarterly net interest margin of 2.03%. This is approximately 2 basis points ahead of consensus estimates, which may explain why CBA shares are heading higher today. Citi commented:
This better NIM was mitigated by likely lower volumes, as the loan book contracted over the quarter.
However, the broker isn't in a rush to change its recommendation. It doesn't believe the result is enough to justify the bank's premium valuation. Its analysts currently have a sell rating and lowly $82.50 price target on the bank's shares. This implies a potential downside of almost 20% over the next 12 months from current levels.
Over at UBS, its analysts believe the company's earnings are run rating ahead of expectations, which could mean upgrades are on the way. Once again, this may explain why CBA shares are having a decent session. It commented:
Implied 2Q FY 2024 consensus suggests a cash earnings number of A$2.3 billion, which CBA is currently run rating well above.
UBS is currently neutral with a $105.00 price target.
