National Australia Bank Ltd (ASX: NAB) shares have had a difficult year.
Down approximately 10% year-to-date, NAB has materially underperformed the broader ASX 200 in 2026. The company has shed billions in market capitalisation even as the bank continued to pay consistent fully franked dividends to its shareholders.
This week, Fairmont Equities' Michael Gable added his name to the growing list of analysts expressing concern about the outlook, issuing a sell alert on NAB shares with a frank assessment of the risks building into FY27.
The question for the millions of Australians who own NAB shares, directly or through their superannuation funds, is whether those concerns are already reflected in the price or whether there is more pain ahead.
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What the analyst said
Gable's sell case rests on three specific concerns about NAB's positioning heading into FY27.
The first is margin pressure.
Higher deposit competition continues to eat into the spread between what NAB earns on its lending and what it pays to depositors.
This is a structural headwind for all four major banks, and one that hits NAB particularly hard given its business banking focus.
The second is credit risk.
NAB's first-half FY26 result saw the bank increase its collective provisions by $300 million. This is a signal that management is preparing for potential deterioration in credit quality across its business lending book as higher interest rates and a weaker economy take their toll.
The third concern goes to NAB's core competitive advantage.
NAB has long been regarded as the premier business bank in Australia, with deeper relationships and stronger market share in commercial lending than any of its peers.
Gable cautioned that this strength is what makes NAB most exposed in the current environment.
He said:
In a weaker economy, NAB is particularly vulnerable to softer earnings growth due to its higher focus on business banking.
Summarising his sell recommendation, he concluded:
Despite a significant share price fall, NAB valuations aren't cheap, leaving the stock exposed to downside risk.
The numbers behind the concern
NAB's first-half FY26 result, released on 4 May, told a story of a bank managing its way through difficult conditions rather than growing through them.
Cash earnings (excluding notable items) rose just 2.3% year-on-year to $3.59 billion, while underlying profit was up 6.4%.
The credit impairment charge of $706 million was partially tied to potential stress from the Middle East conflict.
The bank maintained its interim dividend at 85 cents per share, a sign of stability but also confirmation that earnings growth has slowed to a level that does not support a dividend increase.
The consensus analyst picture is bleak relative to NAB's recent history.
Of the nine most recent rating calls, four are sell, three are hold, and two are buy. This is an unusually bearish spread for one of Australia's largest companies.
The bull case for NAB shares still exists
Not every analyst shares Gable's view.
UBS retains a buy rating on NAB shares with a price target of $48.50, implying upside of approximately 35% from current levels.
The broker cited NAB's improving net interest margin and business banking position as reasons the selloff has overshot.
At approximately 15 times forecast FY26 earnings, NAB is also considerably cheaper than CBA, which trades at approximately 26 times.
The consensus forecast for the FY26 dividend is $1.70 per share, fully franked.
This implies a forward grossed-up yield of approximately 6.4% at current prices, which remains attractive on an absolute basis for income investors.
That yield, and the relative valuation discount to CBA, forms the core of the remaining bull argument.
The honest assessment for NAB shares
The headwinds Gable identifies are material.
Margin pressure, rising provisions, and business banking credit risk are real concerns, and were reflected in the bank's own first-half result.
However, a 10% share price this year already prices in a meaningful amount of that negative expectation.
The gap between UBS's $48.50 target and the current price suggests the market has, if anything, possibly overreacted.
But that conclusion depends on whether credit quality holds up and whether NAB's business banking franchise continues to outperform its peers even in a weaker economy.
Foolish takeaway
NAB shares are not obviously cheap even after a 10% fall.
The headwinds the bank faces into FY27 are material. But a cheaper entry point, a fully franked yield approaching 6.5%, and a valuation discount to CBA all suggest the market has already priced in a significant portion of the bad news.
Investors who already hold NAB shares for income purposes have a defensible reason to stay patient.
Investors considering a new position should weigh the attractive yield against the credit quality uncertainty that FY27 will ultimately resolve.
