CBA share price: is the bank a buy heading into its H1 results?

Key dates for CBA investors

The Commonwealth Bank of Australia (ASX: CBA) is set to release its first-half, FY20 financial results on 12 February.

The bank’s interim dividend date is currently set for 19 February; with CBA set to pay this dividend on 31 March.

The company has a current dividend yield of 5.18% and most recently paid a 231 cents per share dividend.

CBA share price: a stretched valuation

CBA is currently Australia’s largest publicly listed company, boasting a market capitalisation of ~$148 billion.

It also remains Australia’s most expensive bank – from a valuation perspective.

Surveying the big four's current price-to-earnings (PE) ratios: on a one-year forward basis, we see that CBA is the most expensive of the banks, trading at a forward PE of 17.2x. Looking at the other members of the big four, we see that Westpac currently trades at 13.6x, National Bank of Australia at 12.5x and ANZ at 12.2x, according to Morgan Stanley.

Investors have taken little heed of such matters, it would seem. In the last twelve months CBA has been the best performing of the big four, with its stock rising ~13% in that period.

The CBA share price currently trades at $84.29 per share – up around 1%, as the ASX 200 flirts with all-time-highs.

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The analyst view: a bearish take

Besides potential valuation issues, analysts are on average, bearish on CBA’s prospects as we head into the bank’s half-year results.

As it stands, no analyst rates CBA a buy, while six rate it a hold and 10 rate it a sell. The average 12-month price on CBA is $75.30 per share, according to Bloomberg data.

At current levels, such a price target would imply downside of ~10.5%, should analysts be proven correct.

Bell Potter is the most bullish broker, assigning the bank a price target of $86.00 per share.

By comparison, Evans & Partners is the most bearish, with a negative recommendation and a price target of just $65.00 per share. At current price levels that price target would imply downside potential of a little more than 20%.

Other issues facing the big four – including CBA – and identified by Macquarie Wealth Management include margin and fee headwinds, the persistence of regulatory issues, a changing and ever-increasing competitive landscape and a historically weak credit growth outlook.

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