The Commonwealth Bank of Australia (ASX: CBA) share price has come under fire this week after the banking giant released a quarterly update well short of expectations. For the three months ended March 31 Commonwealth Bank generated unaudited cash net profit after tax (NPAT) of approximately $2.35 billion. This was a decline of 2% on the average quarterly NPAT it generated in the first two quarters and means the bank is highly unlikely to achieve the second-half NPAT of $5.1 billion that the market was looking for. But with its shares now notably lower post-results, is it time to…
For the three months ended March 31 Commonwealth Bank generated unaudited cash net profit after tax (NPAT) of approximately $2.35 billion.
This was a decline of 2% on the average quarterly NPAT it generated in the first two quarters and means the bank is highly unlikely to achieve the second-half NPAT of $5.1 billion that the market was looking for.
But with its shares now notably lower post-results, is it time to pick them up?
I’m not sure that it is. Investor sentiment appears to be incredibly weak at the moment and I expect this could weigh on its shares in the short to medium term.
Especially with many leading brokers becoming increasingly bearish on its shares. Analysts at Citi and Morgan Stanley have both slapped sell ratings on the bank’s shares following its results release.
And while Morgans is one of the only brokers remaining positive on the bank with an add rating, even it has cut the price target on its shares down to $79.00.
I thought the quarterly result was very weak, especially in comparison to the solid results we saw from Westpac Banking Corp (ASX: WBC) and Australia and New Zealand Banking Group (ASX: ANZ) a week earlier.
Another concern I have was the bank’s increase in consumer arrears of home loans of more than 90 days. These have risen by almost 40% over the last two and a half years to 0.65% and could set alarm bells ringing if they continue to rise.
Overall, this latest update makes me question whether Commonwealth Bank’s shares deserve to trade at a premium to the rest of the big four banks anymore.
I’m not sure they do. In light of this, I would sooner be buying Westpac shares. Not only are they cheaper, they offer a far greater dividend yield.
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Motley Fool contributor James Mickleboro owns shares of Westpac Banking. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.