Commonwealth Bank of Australia (ASX: CBA) is the biggest ASX bank share in Australia. What is the predicted profit for CBA shares for the next few years? In this article, we're going to look at some estimates which may justify, or warn us about, the current CBA share price.
With how the CBA share price has soared 16% in six months, you'd think that good profit growth is forecast. Let's have a look.
Challenging FY24
On a cash basis, the company generated $6.01 of continuing operations earnings per share (EPS) in FY23.
However, the business is seeing rising arrears and a fairly competitive environment in the banking sector. Credit growth is quite low, too. In the FY24 first-half result, it reported cash profit fell 3% to $5.02 billion and the net interest margin (NIM) fell 11 basis points year over year to 1.99%.
The broker UBS thinks very optimistic assumptions are required to justify the recent run-up in bank share prices.
Commsec has independent estimates that suggest owners of CBA shares could see EPS of $5.77 in FY24, which could mean a 4% fall in EPS year over year.
This would put the CBA share price at over 20 times FY24's estimated earnings.
Subdued FY25
Things may not get much better in FY25 as it's possible that interest rates may still be high and arrears/bad debts could be elevated, depending on what happens with the economy.
The estimate is that CBA's EPS could fall again to $5.63, which would be a drop of around 2.5% in FY25.
It implies the CBA share price is valued at 21 times FY25's estimated earnings.
Recovery to start in FY26?
The FY26 projected profit is still predicted to be below FY23.
The current forecast is that the ASX bank share might generate $5.77 in FY26. That's the same as FY24, so it would put the bank at 20 times FY26's estimated earnings.
Foolish takeaway
The major bank has seen its share price soar to all-time highs, yet the profit is expected to be lower than FY23 for a number of years.
To me, it's clear that CBA shares have become significantly more expensive and its profit growth doesn't justify that. I'd be cautious at this level and look to other ASX shares as potential ideas.
