Macquarie has slapped a $101 price tag on Commonwealth Bank of Australia (ASX: CBA), while it has also increased its Westpac Banking Corp (ASX: WBC) recommendation from "underperform" to "neutral", as reported by the Fairfax press.
While both banks' shares should benefit in the event of another official Reserve Bank of Australia interest rate cut, Macquarie believes Commonwealth Bank and Westpac will both increase their penetration in banking for small and medium-sized enterprises (SMEs). Currently, that market is dominated by National Australia Bank Ltd. (ASX: NAB) and Australia and New Zealand Banking Group (ASX: ANZ).
Macquarie's optimistic views on the banks have come at a time where other investment houses are beginning to question their lofty valuations. Goldman Sachs and Citi have expressed concerns on issues regarding their vulnerability to a weaker Australian economy as well as tougher regulations.
Should you buy?
Until now, I've been proven wrong on my judgement not to buy the big four banks. Each of them have skyrocketed in price over the last three years and are all sitting near all-time (or multi-year) highs. With interest rates remaining low (and set to fall even further), many investors appear to be under the impression the good times will continue indefinitely.
Despite this, I maintain my conviction that long-term investors should avoid the shares. The shares are overpriced and, although they could rise in the near-term, I believe they will struggle to outpace the broader market's returns on an ongoing basis.