It appears investors in Commonwealth Bank of Australia (ASX: CBA) have taken analysts’ targets with a grain of salt.
Although one brokerage firm yesterday raised their target price for the bank’s shares by 5% to $87.80, investors have today sold the stock down by 55c or 0.7% to a price of $79.28 apiece. This is largely in line with the broader S&P/ASX 200 Index’s (Index: ^AXJO) (ASX: XJO) 0.6% drop to 5,386 points.
The market’s reaction hardly comes as a surprise. Commonwealth Bank’s shares are hovering around their all-time high prices and are richly valued on both a P/E ratio and price-book ratio. The same can be said about its primary rivals, namely Westpac Banking Corp (ASX: WBC), Australia and New Zealand Banking Group (ASX: ANZ) and National Australia Bank Ltd. (ASX: NAB).
In addition, the fully franked dividend yield offered by Commonwealth Bank is nowhere near as attractive as it has been in years gone past. While it still offers a 4.7% yield, investors are recognising there are much better opportunities available.