Are Macquarie or CBA shares a better buy?

These are two of the ASX's best banks in my opinion. But which is better?

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Investors who have owned Macquarie Group Ltd (ASX: MQG) and Commonwealth Bank of Australia (ASX: CBA) shares have enjoyed the benefits of positive long-term investments.

CBA is known as the biggest bank in Australia, and it has an impressive position in the Australian home lending space.

Macquarie's business has four different segments: asset management, investment banking, commodities and global markets (CGM), and a retail bank providing banking and loans.

But let's compare the ASX bank shares in three different areas – valuation, dividend yield and potential growth — to find out which is a better buy right now.

Macquarie and CBA share price valuation

The price/earnings (P/E) ratio isn't everything, but the earnings multiple can tell us if one business is trading more expensively than another within the same sector. Or, the change in a company's own P/E ratio can tell us if it's cheaper or more expensive than it used to be.

Using the estimates from the broker UBS, the Macquarie share price is valued at 19x FY25's estimated earnings and 18x FY26's estimated earnings.

In comparison, the CBA share price is valued at close to 22x FY25's estimated earnings and 21x FY26's estimated earnings.

On the above numbers, Macquarie shares are trading more expensively than CBA shares.

Potential growth

CBA's operational activities focus largely on lending to households and businesses in Australia and New Zealand. The bank has been pushing to grow its business lending, which was 1.1x the overall Australian system for the three months to March 2024. However, CBA's home lending was only 0.7x the system.

CBA and many of the domestic ASX bank shares are currently suffering from high levels of competition in the sector. This is impacting net interest margin (NIM) and limiting growth. CBA's quarterly cash net profit was down 5% year over year to around $2.4 billion.

In contrast, Macquarie is growing its market share and challenging the major players. I'll also point out that Macquarie makes a significant amount of its earnings internationally. The company has the option to allocate attention and capital to whichever market it thinks it can make the best returns from.

Macquarie has also been looking to tap into areas like renewable energy, which is a big area of potential investment in the coming years as the world looks to decarbonise.

According to UBS, Macquarie's earnings per share (EPS) are expected to grow by 33% between FY25 and FY28. However, CBA's EPS is only expected to grow by 4% between FY25 and FY28.

I think Macquarie shares offer much more earnings growth potential, so I'd buy shares of the investment bank over CBA shares.

Dividend yield

Capital growth could account for the majority of future returns for both businesses, but the dividend return is also an important part of the picture.

According to the independent forecasts on Commsec, owners of CBA shares are expected to receive a fully franked dividend yield of just under 3.6% in FY25 and just over 3.6% in FY26.

Owners of Macquarie shares are projected to receive a partially franked dividend yield of 3.4% in FY25 and 3.7% in FY26. Macquarie's projected superior earnings growth could lead to a better dividend yield.

Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended Macquarie Group. The Motley Fool Australia has positions in and has recommended Macquarie Group. 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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