The Commonwealth Bank of Australia (ASX: CBA) share price has been one of the surprise performers this year, rising by close to 40%. It's worth asking whether the outlook for 2025 is as positive.
The latest information that investors have to utilise is the ASX bank share's FY25 first-quarter update, which showed cash net profit after tax (NPAT) of approximately $2.5 billion, which was flat year over year. But, this did represent a 5% increase compared to the quarterly average of the FY24 second half (or a 3% rise on a per-day basis).
Operating income increased by 3.5%, thanks to profitable volume growth, among other factors, while operating expenses grew by 3% because of wage inflation and increased investment spending.
However, what has already happened is history. What about the CBA shares outlook for 2025?
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Challenged operating environment for ASX bank shares
Various experts have weighed in with their views on how the ASX share market could perform next year. Let's have a look at some of those.
First, Darren Thompson, head of asset management at Equity Trustees Asset Management, thinks profit growth could be limited:
The outlook for both earnings (EPS) and dividends (DPS) for the domestic market is heavily weighted to the performance of banks and resources. Bank earnings are anticipated to be broadly flat due to a combination of modest credit growth, ongoing competition restricting net interest margins, ongoing cost pressures and already cyclically low bad debt provisions.
CreditorWatch, a data business that provides credit risk management solutions, has a suggestion as to why bank losses remain low, and profitability is being sustained despite the high interest rate costs affecting borrowers, which is helping CBA shares:
Elevated and/or rising asset prices are likely an important explanation of this conundrum, with the household sector in aggregate having deleveraged significantly in recent years as house and share prices have risen sharply. And for many of the still relatively low share of households getting into financial difficulty, the 20-40% rise in house prices since before COVID generally means that the asset can be sold often at a profit and almost always without a significant impact on bank losses.
This is not to say that many are not doing it tough – indeed we hear frequently of significant increases in demand for food support services. However, the data so far suggests that these pressures are not showing up in significantly increased pressures or losses for financial institutions. Where there is some greater pressure reported is on newer non-bank lenders.
Pessimistic CBA share price target
While experts seem to agree that CBA's profit can be sustained or even grow in FY25, the ASX bank share is regularly called expensive.
For example, UBS currently has a sell rating on CBA shares, with a price target of $110. That implies the broker believes the CBA share price could fall by 30% within the next year.
When the CBA share price was $150, UBS said the ASX bank share had a price-to-book value of around 3.2x for FY26.
In terms of the price-earnings (P/E) ratio, it's valued at more than 25x FY26's estimated earnings.
The broker noted that CBA is trading at valuation ratios significantly higher than it has historically. UBS is predicting that CBA can grow its profit steadily between FY25 and FY29, but net profit is only expected to rise by 14% during that time period, which may not be enough to excite investors and sustain this earnings multiple.
