$10 billion profit: Is it enough to buy CBA shares now?

CBA shares have been grabbing headlines this week after the ASX 200 bank reported its FY 2023 results.

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Commonwealth Bank of Australia (ASX: CBA) shares are up 0.2% in afternoon trade on Friday.

Shares in the S&P/ASX 200 Index (ASX: XJO) bank stock have gained 2.4% since the closing bell on Tuesday, currently trading for $104.66 apiece.

CBA shares have been grabbing the financial news headlines this week after the company reported its FY 2023 results Wednesday morning.

Highlights included a 13% year-on-year increase in operating income, which reached $27.2 billion. And the bank's net interest margin (NIM) was up 0.17% from FY22 to 2.07%, though margins fell .05% in the June half.

But it's CBA's full-year $10.2 billion cash net profit after tax (NPAT) that really grabbed attention.

It can be hard to wrap your head around a figure this size.

So, let's write it out properly. NPAT came out to $10,164,000,000.

With those kinds of mind-boggling profits rolling in, does that make CBA shares a buy?

$10.2 billion in profits

While the profit figure is impressive, it wasn't enough to sway many analysts' bearish medium-term views on CBA shares.

Among the top concerns are that stiff competition for loans will continue to see net interest margins shrink. And that CommBank's stock continues to trade at a significant premium to the other ASX 200 banks.

Goldman Sachs is among the bears who don't think CBA shares should be trading at a high premium to rival banks. The broker also doesn't expect the bank to post profits of this size again until FY 2028.

"CBA's consumer banking skew leaves its earnings more exposed to sector-wide headwinds," Goldman said.

The broker noted:

While CBA has historically done a good job in balancing investment and productivity, we do not think it can escape elevated FY24 [estimated] cost pressures given heightened inflation.

CBA's operating expenses in FY23 were up 5% from FY22 to $11.7 billion

Goldman has a sell rating on CBA shares with an $81.63 price target. That's some 22% belove the current price.

Morgan Stanley analyst Richard Wiles also doesn't advise buying the big bank just yet.

Referring to CBA's valuation, Wiles said (quoted by The Australian Financial Review):

Risks are skewed to the downside, and trading multiples remain expensive …

We haven't significantly changed our view on the outlook given ongoing headwinds from competition and mix.

Morgan Stanley maintained its underweight rating on CBA shares.

And Barrenjoey analyst Jon Mott also pointed to a likely squeeze on net interest margins as the reason for maintaining his $85 price target on the bank's stock.

"With a challenging revenue environment, inflationary pressures and early signs of deteriorating credit, it is hard to see material upside," he said.

How have CBA shares been tracking?

CBA shares have gained just under 4% in 2023. Shares are up 41% over five years.

Motley Fool contributor Bernd Struben 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 has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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