The Commonwealth Bank of Australia (ASX: CBA) share price performance has been a big surprise over the past year, rising by an astonishing approximate 40%.
It can be a mistake to think an ASX share can't keep rising just because it has already risen a lot. However, it's also important to remember to pay attention to valuations – the value needs to make sense or else it could get unsustainably high and then fall back.
The key question is – is CBA generating enough profit to justify its valuation and send it even higher?
Let's take a look at what one expert thinks.
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UBS view on the CBA share price
The broker UBS suggested that CBA's FY25 third quarter update was in line with market expectations. CBA's performance is supposedly on track to achieve what market analysts (including UBS) are expecting from the ASX bank share in FY25.
UBS noted that growth in CBA's proprietary (owned) channels within the retail division (being 68% of new business) is "likely supporting retail profitability, while the bank continues to grow above system in business banking", at 1.3x the overall banking system.
The broker said that the bank remains disciplined around delivering improving profit margins – management are controlling a number of levers to drive this.
UBS noted that the last 12 months of earnings were around $10.1 billion, implying a common equity tier 1 (CET1) ratio of around 17.8%, annualised.
The broker noted that CBA is expected to grow its earnings per share (EPS) by 5.2% in FY25, which is the highest growth rate among the large ASX bank shares. But, it's also trading at 26.5x FY26's estimated earnings.
UBS noted that CBA is currently priced at a significantly higher level than its historical average. The analysts also pointed out that CBA has a dividend yield of around 2.8%.
Rating and price target
The CBA share price is rated as a sell by UBS because it sees better value elsewhere in the ASX bank share space.
UBS has a price target of $115 on CBA. A price target is where an analyst thinks the share price will be in 12 months from the time of the investment call. Therefore, UBS is projecting the CBA share price could drop by 32% from where it is right now.
But, despite the negative calls on CBA's valuation in recent months, the bank has continued rising. So, we'll see what happens next.
