The Commonwealth Bank of Australia (ASX: CBA) share price is pushing higher again on Thursday.
At the time of writing, the banking giant's shares are up almost 1% to $135.30.
Investors have been bidding Australia's largest bank higher this week following the release of a stronger than expected result for FY 2024.
This latest gain means that its shares are now up 19% since the start of the year.
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What are analysts saying about CBA and its share price?
I have good news and bad news for shareholders and would-be investors.
The good news is that brokers were reasonably impressed with the company's performance and its higher than expected dividend in FY 2024.
This has led to many analysts lifting their valuations for the big four bank.
The bad news is that even these higher valuations are notably lower than where the CBA share price currently trades.
For example, Morgans has retained its reduce rating with an improved price target of $97.38 and Morgan Stanley has held firm with its underweight rating and lifted its price target to $103.00.
However, both price targets are over 23% lower than where its shares are trading today.
Analysts at Goldman Sachs see even great downside for the CBA share price. The broker has responded to the results by reiterating its sell rating with an improved price target of $94.80.
This implies potential downside of 30% for investors over the next 12 months before dividends. If you include dividends, the potential downside reduces to approximately 26%.
Valuation thoughts
Goldman did make some interesting comments about CBA's valuation and its cost of capital in particular. It said:
On valuation, we were interested to note that on the one hand, CBA estimates that its market implied cost of equity is c. 8%, and yet its internal cost of capital performance hurdle remains unchanged at 10%, the latter which is roughly consistent with our own cost of equity assumption that we use in our CBA DCF valuation.
For context, if we were to reduce our cost of capital assumption by 2%, it adds A$35, or 41%, to our CBA DCF valuation. However, to the extent that, like CBA, we are not changing our cost of capital assumption, purely because the market has, we see CBA's valuation as stretched. Furthermore, at a 61% 12-month forward PE premium versus peers (ex-dividend adjusted), compared to the 24% 15-year average, we remain Sell rated.
It seems that if its cost of capital can reduce to 8%, CBA's valuation might not be so crazy after all.
