Commonwealth Bank of Australia (ASX: CBA) shares are out of form on Monday.
At the time of writing, the banking giant's shares are down almost 2% to $104.00.
This appears to have been driven by weakness in the banking sector and nervous investors selling shares ahead of the bank's first quarter update tomorrow.
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What is the market expecting from CBA tomorrow?
According to a note out of Citi this morning, it has responded to recent bank updates by trimming its expectations for CBA in FY 2023 and through to FY 2025. It commented:
CBA is set to provide its 1Q23 update on Tuesday, 15 November, closing out the results season for the Major Banks. Post recent results, we have made minor earnings revisions to our CBA forecasts, downgrading FY23-25E by ~2-5% reflecting earlier NIM leverage to deposits, mitigated by stronger asset headwinds; lower non-housing growth through FY23/24E; and slightly higher costs.
Nevertheless, the broker is expecting a first quarter result in line with consensus estimates. It is predicting a 9 basis points improvement in the bank's net interest margin to 1.96% and core earnings growth of 6% over the second half average. It explained:
Our 1Q23 cash earnings forecast is in-line with consensus, and we forecast a quarterly NIM of 1.96%, ~9bps ahead of 2H22. At the core earnings line, we expect ~6% core earnings growth in 1Q23 vs the 2H22 average. We expect asset quality to be benign, with a quarterly charge of ~$220m in-line with consensus and more reflective of portfolio growth with new impaired assets likely to remain low, similarly to peers.
Are CBA shares good value?
Citi remains bearish on CBA's shares and believes they are trading at too large a premium.
As a result, it has retained its sell rating and $85.50 price target on the bank's shares. It concludes:
We retain our Sell call, with the valuation premium remaining disconnected from similar trends across the sector as volume growth slows.
