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Leading broker rates CBA shares as a sell

On Tuesday the Commonwealth Bank of Australia (ASX: CBA) share price defied the market weakness and pushed higher.

The banking giant’s shares finished the day 1% higher at $80.83. This compares to a 0.3% decline by the S&P/ASX 200 index.

Why did CBA climb higher?

Investors were buying the shares of Australia’s biggest bank following the release of its first quarter update.

Despite the tough trading conditions being faced in the banking sector, CBA delivered solid cash earnings growth during the three months ended September 30.

The bank posted an unaudited cash net profit from continuing operations of $2.3 billion. This was up 5% on the prior corresponding period excluding notable items.

It also reported a 3% increase in net interest income during the quarter. This was due partly to an additional 1.5 days in the quarter. On a day-weighted basis, net interest income was 2% higher, underpinned by volume growth in core markets of home lending, business lending, and household deposits.

This solid quarter appeared to impress many in the market, especially after softer recent results by Australia and New Zealand Banking Group (ASX: ANZ) and the rest of the big four.

Goldman Sachs retains its sell rating.

But not everyone was impressed. According to a note out of Goldman Sachs, its analysts have retained their sell rating on CBA’s shares.

However, they have lifted their price target on its shares to $76.10. This reflected a slight upgrade to Goldman’s earnings estimates through to FY 2022.

Goldman explained: “While today’s 1Q20 update was better than our prior forecasts, we continue to think CBA will be more adversely impacted by lower rates and non-interest income pressures, while reflected in our forecasts, will not be as hidden by one-off items (DVA and asset sales) as they were in 1Q20. Therefore, given it is currently trading at a 6% premium to our revised TP, we maintain our Sell rating on CBA and struggle to justify the 22% PER premium it currently trades on versus Westpac (Neutral; historic average 9%).”

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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.

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