The ASX bank share Commonwealth Bank of Australia (ASX: CBA) recently reported its FY24 result. Now investors have an insight into the company's outlook and analysts have a chance to outline their predictions for the next few years.
The FY24 result saw a small decline in cash profit and a drop in the annual net interest margin (NIM). However, pleasingly, the NIM improved by 1 basis point in the second half compared to the first half – the broker UBS called this a "standout". The bank also reported a lower loan impairment expense.
After seeing the financial numbers, UBS decided to slightly increase its cash earnings per share (EPS) forecast by 1%, 0.2% and 2.2% for FY25, FY26 and FY27, respectively. That was due to higher lending growth assumptions, a better NIM forecast and adjustments to bad debts assumptions for the "sharp increase in delinquencies we have seen…albeit factoring in lower loss rates."
FY25 for CBA shares
We're already a month and a half into the 2025 financial year, so the next result we'll see is the FY25 half-year result in six months.
In terms of the full-year report, UBS is expecting CBA to grow its revenue by 2.4% to $27.8 billion. The pre-tax profit is forecast to grow by 2.6% to $14.5 billion. This could lead to cash profit rising by 7.5% to $10.1 billion, with EPS of $5.99.
UBS has a sell rating on CBA shares, with a price target of just $110, implying a sizeable drop from current levels. The broker thinks there is a "sizeable disconnect between expected profitability and market valuations."
The broker has also increased its expected dividend payout ratio for CBA shares to the top of the target range of between 70% to 80%, though capital levels remain "well above regulatory minimums."
FY26
While UBS is negative on the CBA share price valuation, the broker still believes the business can deliver earnings growth for shareholders.
In FY26, the ASX bank share is projected to grow its revenue by 2.1% to $28.4 billion, increase pre-tax profit by 0.8% to $14.6 billion and deliver profit growth of 0.7% to $10.17 billion, translating into EPS of $6.03.
FY27
The 2027 financial year could see a bigger increase in profit compared to the growth in FY26.
FY27 revenue is forecast to rise by 2.7% to $29.2 billion, pre-tax profit is projected to rise by 3.25% to $15.1 billion and net profit is predicted to rise by 3.25% to $10.5 billion.
While growing profit is a good factor, UBS is only predicting CBA's cash profit to increase by 11.8% between FY24 and FY27. In my own opinion, that's not strong enough profit growth to justify the current high valuation.
