Commonwealth Bank of Australia (ASX: CBA) shares have been under heavy selling pressure this week.
This has continued on Wednesday, with the banking giant's shares down a further 1% to $162.03.
Investors have been hitting the sell button in response to its quarterly update, which failed to justify its premium valuation.
Has this weakness created a buying opportunity for investors? Let's see what Macquarie Group Ltd (ASX: MQG) is saying about Australia's largest bank.
What did Macquarie think of CBA's update?
Macquarie notes that the bank's quarterly update was softer than expected. However, this was due largely to remediation costs, with its underlying result outperforming due to stronger revenue. It explains:
CBA's 1Q26 trading update was softer at a headline level, but this was largely driven by remediation costs. Excluding this, underlying operational trends at CBA appeared reasonable, with a 1% pre-provision earnings beat driven by better revenue. We estimate underlying margins (excluding liquids, which were a ~3bp drag) were down ~1-2bps, broadly in line with our expectations. Positively, credit quality metrics improved, however CBA maintained its peer-leading provision coverage, leaving scope for potential releases at the 1H26 result.
Challenging margin outlook
One thing that caught the eye of Macquarie's team was the bank's challenging margin outlook. It highlights that CBA's margins are facing a number of headwinds. It adds:
Despite generally better margin commentary from peers, CBA flagged a more challenging margin outlook. Highlighting headwinds from deposit mix (as customers switch from low-rate online savers to higher-rate bonus savers), continued competition, and the impact of rate cuts. While we have long expected deposit competition to remain a headwind, we upgrade our FY26 and FY27 margins by 1-2bps as we mark-to-market for recent moves in yield curves and remove an RBA rate cut from our profile.
CBA shares tipped to tumble
In light of the above, Macquarie has not seen anything to justify the premium that CBA shares trade on at present. As a result, the broker has reaffirmed its underperform rating and lowly $106.00 price target.
Based on its current share price, this implies potential downside of almost 35% for investors over the next 12 months.
Overall, the broker feels that CBA's valuation is excessive and cannot be justified by its funamentals. Commenting on its underperform recommendation, Macquarie said:
While CBA remains the leading banking franchise, with cracks appearing in its deposit 'moat', and further downside risk to consensus, we believe valuation of ~26x FY26E P/E and ~3.5x P/B remains detached from fundamentals. Maintain Underperform.
Valuation: We leave our target price unchanged at $106, given minimal earnings changes. This is based on a Gordon Growth and relative valuation methodology.
