For the past couple of years, experts have continued to warn that CBA shares were overvalued.
Despite such warnings, Commonwealth Bank of Australia (ASX: CBA) continued to rise, peaking at $192 earlier this year.
Since then, CBA shares have steadily declined in value.
Friday, they closed at $164.88, which is nearly 15% below their peak.
ASX investors may be wondering whether CBA shares are finally good value.
Last week, Macquarie Group Ltd (ASX: MQG) upgraded its price target on CBA shares. However, this was a minor increase from $105 to $106, which is still well below the current share price.
Does JP Morgan Chase & Co (NYSE: JPM) have a higher price target? Let's find out.
JP Morgan analyses CBA's FY25 result
After reviewing CBA's FY25 result, which caused CBA shares to drop 5.4%, JP Morgan released a new research note on 13 August.
The investment bank summarised four key takeaways from the result. Firstly, CBA's cash net profit after tax (NPAT) of $10.25 billion was in line with JP Morgan's forecasts; however, management struck a more cautious tone on its outlook. Secondly, the CBA's net interest margin (NIM) is stable, but pressure will continue. Thirdly, JP Morgan noted persistent competition across the balance sheet. Fourthly, while CBA's retail main financial institution (MFI) fell from 35.5% to 33.2%, with other major banks improving, it remains the market leader.
The investment bank also noted that CBA's operating expense growth of 6.1% (or 5.9% excluding inflation) has stepped up meaningfully over the past two years.
However, JP Morgan said the result was in line with its forecast, resulting in immaterial changes to their FY26 and FY27 forecasts.
Commenting on the share price reaction, JP Morgan said:
It's tempting to think that the severe market reaction (share price -5.4% vs. ASX 200 -0.6%) is overdone. However, context is important; this broke a run of small EPS upgrades this calendar year, and the shares were likely pricing in greater expectations, as valuation was already very stretched before today.
CBA continued to trade on a forward price-to-earnings ratio of 27 and price-to-book ratio of 3.5. It also has a return on equity of 13.1%. These numbers make it "arguably the most expensive developed market bank in the world", according to JP Morgan.
In its research note, JP Morgan outlined several positives for the bank. It said CBA has structural advantages over other major banks due to its peer-leading deposit franchise, very strong proprietary retail banking franchise, superior scale, higher MFI score and technology advantage.
JP Morgan more optimistic than Macquarie
Following the result, JP Morgan provided its price target on the CBA shares.
The investment bank reiterated its 'Underweight' rating and price target of $120.
While this is above Macquarie's price target of $106, it suggests the stock has significantly further to fall before it is attractively valued.
