Shares in Commonwealth Bank of Australia Ltd Take a Hit
Shares in Commonwealth Bank of Australia Ltd (ASX: CBA) had a tough week, dropping significantly after the bank released its third-quarter results. Investors who have held onto their shares for a year are now slightly in the red, and this week's decline should be viewed in the context of the bank giving back all the gains it made from mid-February.
The main concern for shareholders is where the shares will go from here. According to analysts, the outlook isn't promising.
Results Didn’t Impress
On Wednesday, the bank announced a cash net profit after tax of approximately $2.7 billion. This represents a 1% decrease compared to the quarterly average across the first half of the year but a 4% increase from the previous corresponding quarter. Operating income remained flat, with the benefit of lending and deposit volume growth offsetting the impact of two fewer days. The underlying net interest margin was broadly stable, excluding non-recurring tailwinds.
CBA reported a loan impairment expense of $316 million, with higher collective provisions reflecting increased geopolitical and macroeconomic uncertainty.
Analysts Predict Further Declines
Looking at what the analysts are saying, Macquarie noted that CBA's 3Q26 trading update was a slight miss against consensus expectations, driven by weaker revenues and a provisioning top-up. They added:
"CBA's 3Q26 trading update was a slight miss to consensus expectations, driven by weaker revenues and a provisioning top-up. Stepping back, our key takeaway from May results has been a clear deterioration of revenue trends across the sector, with quarter on quarter revenue falling 3%. While CBA has marginally outperformed peers, trends were still weaker, with underlying revenue ~flat. With downside risk to earnings and a more challenging macro backdrop, we maintain Underperform."
Macquarie has set a price target of $114 for CBA shares.
Morgans analysts also believe CBA shares have further to fall, with a price target of $119.40 and a sell recommendation. They noted:
"As well as being Australia's largest bank, compared to its peers CBA has the highest return on equity, lowest cost of capital, leading technology, largest position in the residential mortgage market (with the lowest risk portfolio in this low risk market segment) and largest low cost deposit base (with a greater skew to households and transaction accounts than its peers), and a loyal retail investor and customer base. However, we believe potential medium-term returns are too compressed at current prices considering CBA's elevated trading multiples."
UBS is not as pessimistic, setting a price target of $130, though still below the current share price. Jarden has the lowest price target of $90, noting that CBA is particularly vulnerable to changes in negative gearing in the Federal Budget.
"CBA appears quite vulnerable to the negative gearing changes for investor home loans, a space it dominates where loans are typically interest only, wider spread and better asset quality underpinning a superior return on equity."
What’s Next for CBA?
With several brokers predicting further declines, investors are left wondering whether now is the right time to invest in CBA. However, some experts suggest there may be better opportunities elsewhere.
Before investing in Commonwealth Bank Of Australia shares, consider the following:
- Motley Fool investing expert Scott Phillips has identified five stocks that may be better buys than CBA.
- The online investing service Motley Fool Share Advisor has provided thousands of members with stock picks that have seen significant returns.
- Current market conditions and analyst predictions suggest caution when considering CBA shares.
For more information on investment strategies and market trends, readers can explore additional resources such as:
- How to build a passive income stream with ASX shares
- Down 9% this week, are CBA shares entering 'a major correction cycle'?
- Buy, hold, sell: CBA, CSL, and Life360 shares
- CGT tax changes may encourage investors into ASX dividend shares: Expert
- What are the pros and cons of buying CBA shares in May?
Final Thoughts
As the market continues to evolve, it's essential for investors to stay informed and make decisions based on thorough research and analysis. While CBA remains a significant player in the Australian banking sector, the current outlook suggests that caution is warranted.
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