The Commonwealth Bank of Australia (ASX: CBA) share price has had a great month.
On 4 July, the S&P/ASX 200 Index (ASX: XJO) bank share closed at $91.45. Its shares are currently trading for $100.58, up 10% in a month.
With a big month of gains behind it, is the CBA share price now fully valued?
For some greater insight into that question, we defer to JP Morgan executive director Andrew Triggs.
RBA rate hikes and net interest margins
The Reserve Bank of Australia's steady path of interest rate hikes, with another 0.50% increase announced yesterday, has the potential to offer some tailwinds for the CBA share price as the bank can increase the net interest margin (NIM) it pockets on its loans.
Of course, all the banks could come under pressure if new mortgage loans fall precipitously or bad debts rise more than currently forecast.
As for net interest margins, Triggs said (courtesy of The Australian), "CBA reported minus 4bps [-0.04%] of NIM pressure in Q3 but we see an improved NIM in Q4 on early benefits of rate rises."
Triggs said that he expects slightly higher costs for the big bank in the second half of FY22. However, he believes investors will be primarily focused on the NIM outlook, saying the CBA share price is likely to be more influenced by RBA rate hikes due to its higher leverage to the increased cash rate.
"We expect signs of a very healthy underlying franchise and CBA should be most leveraged to a rising cash rate," he said. "However, with the stock trading at a 50% 12-month forward PER [P/E ratio] premium to peers this looks more than in the price."
At the current price, CBA trades at a P/E ratio of 19 times.
By comparison, Australia and New Zealand Banking Group Ltd (ASX: ANZ) trades at a P/E ratio of 10.1 times while National Australia Bank Ltd (ASX: NAB) trades at a P/E ratio of 15.3 times.
JP Morgan has an $83.80 target for the CBA share price and is underweight on the stock.
CBA share price snapshot
With a big month behind it, the CBA share price is now down less than 1% in 2022. That compares to a year-to-date loss of 8% posted by the ASX 200.
