CBA (ASX:CBA) is about to lose the mantle of the ASX’s largest company, here’s why

CBA may not be the top dog on the ASX for much longer…

| More on:
A hand holding a pin about to burst a balloon, indicating a crash or drop in asx shares

Image source: Getty Images

Later this year Commonwealth Bank of Australia (ASX: CBA) is likely to be supplanted by mining giant BHP Group Ltd (ASX: BHP) as the largest company on the Australian share market.

What’s happening?

Australia’s largest bank has been the top dog on the ASX for many years but BHP’s unification plans will put an end to that if shareholder approval is granted.

Last year, the Big Australian announced plans to end its listing on the London Stock Exchange and have its primary listing purely on the Australian share market. This compares to its current dual listing, which has shares listed on both exchanges.

At present, the CBA share price implies a market capitalisation of approximately $173 billion. This is some distance ahead of the BHP ASX market capitalisation of $138.5 billion. However, BHP’s UK market capitalisation is estimated to be GBP50.2 billion (A$94.6 billion).

So, once the dual listing ends, the combined BHP market capitalisation on the ASX will be a massive $233 billion, which is a sizeable $60 billion ahead of CBA. For context, this is about the size of conglomerate Wesfarmers Ltd (ASX: WES).

Could CBA retake the top spot?

For Australia’s largest bank to retake the top spot, it would require a big rise in the CBA share price.

For example, to grow its market capitalisation from $173 billion to $233 billion would require an increase of 35%. This would mean the CBA share price rising from $102.24 currently to $138.00.

While this is not unthinkable, the problem is that most analysts already believe the CBA share price is trading on sky high multiples.

So much so, Macquarie and Morgans both have the equivalent of sell ratings on its shares with price targets of $86.00 and $73.00 respectively. And while Bell Potter is positive on the bank’s shares, its 12-month price target of $111.00 leaves it well short of the level required to retake top spot.

In light of this, CBA may have to get used to playing second fiddle in the future.

Should you invest $1,000 in CBA right now?

Before you consider CBA, you'll want to hear this.

Motley Fool Investing expert Scott Phillips just revealed what he believes are the 5 best stocks for investors to buy right now... and CBA wasn't one of them.

The online investing service he’s run for over a decade, Motley Fool Share Advisor, has provided thousands of paying members with stock picks that have doubled, tripled or even more.* And right now, Scott thinks there are 5 stocks that are better buys.

*Returns as of January 13th 2022

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia owns and has recommended Wesfarmers Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

More on Bank Shares

A woman looks shocked as she drinks a coffee while reading paper.
Dividend Investing

Hoping to bag the next Westpac dividend? Read this

Westpac shares will be one to watch out for over the coming days...

Read more »

A man in business pants, a shirt and a tie lies in the shallows of a beautiful beach as he consults his laptop on the shore, just out of the water's reach.
Dividend Investing

How does the Bank of Queensland dividend compare to the other ASX 200 banks?

We dive into how the Bank of Queensland dividend ranks against the big banks.

Read more »

Group of thoughtful business people with eyeglasses reading documents in the office.
Bank Shares

How has the Bank of Queensland share price travelled since the company’s half-year results?

Are Bank of Queensland shares in sync with the company's financial performance? Let's take a look.

Read more »

Gold piggy bank on top of Australian notes.
Dividend Investing

How does the ANZ dividend compare to the other ASX 200 banks?

ANZ is expected to pay a large dividend in FY22. How big will it be?

Read more »

A businessman keeps calm in the face of inflation
Economy

Inflation to ‘peak shortly’: CBA boss says markets have priced in too many rate rises

The big bank forecasts fewer rate hikes from the RBA than consensus expectations.

Read more »

Two brokers pointing and analysing a share price.
Bank Shares

Broker says the CBA share price is expensive and a sell

CBA's Q3 update smashed expectations but one leading broker remains bearish...

Read more »

a young boy dressed in a business suit and wearing thick black glasses peers straight ahead while sitting at a heavy wooden desk with an old-fashioned calculator and adding machine while holding a pen over a large ledger book.
Bank Shares

The ASX bank share with ‘most direct leverage to rising rates’: fundie

Higher interest rates enable banks to increase their lending margins.

Read more »

a woman drawing image on wall of big fish about to eat a small fish
Bank Shares

NAB share price lifts amid Suncorp rumours

NAB shares are up amid acquisition rumours.

Read more »