The Commonwealth Bank of Australia (ASX: CBA) share price is under pressure on Wednesday.
In afternoon trade, the banking giant's shares are down almost 3% to $103.47.
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Why is the CBA share price is dropping?
Investors have been hitting the sell button today after a number of brokers remained bearish on the bank following its first quarter update.
One of those brokers is Credit Suisse, which has downgraded the Australia's largest bank's shares to an underperform rating with a trimmed price target of $97.50. This implies potential downside of almost 6% for investors.
Credit Suisse has reduced its earnings estimates to reflects inflationary pressures and higher bad debts assumptions, which have offset higher net interest margin forecasts.
What else is being said?
Elsewhere, the team at Goldman Sachs has reiterated its sell rating with an improved price target of $90.98. This suggests even greater downside risk of 12% for investors from current levels.
Goldman's main concerns are its valuation. While the broker acknowledges that CBA has a strong franchise, it highlights that it isn't immune from intense competition and tough economic conditions.
As a result, it doesn't believe the CBA share price deserves to trade at such a premium. Its analysts explained:
While the 1Q23 update highlighted the strength of the CBA franchise (particularly deposits), reflected in its very strong NIM performance, we reiterate our Sell given: i) it does remain more exposed to the intense competition we are currently observing in mortgages (albeit CBA appears to be favouring NIM over volumes), ii) we expect that potential further macro downside is likely to more adversely impact the household this cycle, which CBA is more exposed to, and iii) domestic volume trends have tracked towards system levels. We therefore do not believe its fundamentals justify the 51% 12-mo fwd PER premium it is currently trading on versus peers, compared to the 20% historic average.
