On Thursday, the Commonwealth Bank of Australia (ASX: CBA) share price pushed higher despite the market selloff.
This was driven by a positive reaction to the banking giant's third quarter update.
What happened during the third quarter?
For the three months ended 31 March, compared to the quarterly average during the first half, Australia's largest bank revealed a 1% decline in operating income to $6,103 million and flat cash earnings of $2,400 million.
According to note out of Goldman Sachs, this means that the bank's quarterly cash earnings are run-rating 10% ahead of its second half forecasts. In addition, it was 9% ahead of the analyst consensus estimate.
Is the CBA share price in the buy zone?
Despite the bank impressing during the quarter, Goldman Sachs still doesn't see enough value in the CBA share price to change its recommendation.
As a result, this morning the broker has retained its sell rating with an improved price target of $89.86.
Based on the current CBA share price of $102.15, this implies potential downside of 12% for investors over the next 12 months.
Why is the broker bearish?
The main reason that Goldman is bearish on the CBA share price is its valuation. The broker just doesn't believe that the bank's shares deserve to trade at such a premium to its rivals.
Goldman explained:
Overall we reiterate our Sell rating given: i) while CBA's balance sheet is strong and operationally, exhibited superior performance on volume growth versus its major bank peers (ANZ at 0.3x system average WBC at 0.4x, but NAB at 1.2x), ii) NIMs remain soft, with CBA more exposed to sector wide headwinds (elevated swap rates, portfolio mix effects and price competition). As such we do not believe this justifies the 53% PPOP premium it is currently trading on versus peers (peers adjusted for ex-dividend; versus 26% 15-yr average).
