The Commonwealth Bank of Australia (ASX: CBA) share price rose more than 1% on Friday to become the biggest business in Australia. Its 17% rally since 16 April 2024 has enabled the ASX bank share to top the market capitalisation list in Australia.
2024 has been a mixed year for the ASX's two largest companies. The US$30 per tonne decline of the iron ore price has led to the BHP Group Ltd (ASX: BHP) share price falling 14% since the beginning of the year, sliding down to second spot today.
How big is the ASX bank share?
According to Google Finance, CBA now has a market capitalisation of $220.34 billion, while BHP, in second place, has a market capitalisation of $220.10 billion.
To put it into perspective, that's more than Westpac Banking Corp (ASX: WBC), ANZ Group Holdings Ltd (ASX: ANZ), Bendigo and Adelaide Bank Ltd (ASX: BEN), Bank of Queensland Ltd (ASX: BOQ), AMP Ltd (ASX: AMP), Judo Capital Holdings Ltd (ASX: JDO) and Pepper Money Ltd (ASX: PPM) combined.
The CBA share price started the year at $111.80. At the end of today's session, it is worth $131.66 apiece.
What's driving the CBA share price higher?
According to reporting by the Australian Financial Review, some of the bank's rally is being driven by signs of a better-than-expected economic performance after all the interest rate hikes, with rate cuts by central banks now expectedly approaching.
Broker Jarden suggested there's been an increase in bank buying by offshore investors. Some investors abroad are said to be in search of a more stable place to invest than the Chinese share market.
Tribeca Investment Partners portfolio manager Jun Bei Liu said:
Australia stacks up pretty well compared to its peers within the region. Our economy is not slowing down as fast and it's holding up OK. And as a foreign investor, you'll look at Australia and realise it's a safe place to be and hence why you're seeing this transition into a lot of foreign ownership.
The next six months still look pretty OK for the banks, unless our economy is heading for a recession and a tail-risk event takes place.
They only continue to do better than expected, and I think they will continue to have capital return opportunities, whether it's buybacks or special dividends. So combine all of that and you're looking at reasonable returns.
Is the CBA share price at a good valuation?
An ever-rising valuation may mean that CBA shares become overvalued at some point.
The broker UBS predicts that the ASX bank share could generate $5.82 of earnings per share (EPS) in FY24, suggesting it's valued at 23x FY24's estimated earnings.
UBS calls CBA shares a sell, with a price target of just $107, implying a possible fall of close to 20% over the next year. It thinks the valuation is too high, particularly with earnings set to fall slightly in FY24 amid strong mortgage competition by lenders and a rising penetration of mortgage brokers in the loan market.
