Commonwealth Bank of Australia (CBA)
HOLD

CBA - Stock Update

 15 Jun 2022
Sector: Financials

Getting Caught in the Wreck

CBA closed down another ~3.7% yesterday marking the 8th consecutive down day for the stock (down ~15% total) (Figure 1). This move resembles that of the 11-day pullback that occurred at the start of the COVID-19 pandemic and when looking at a rolling 5-day percentage basis (excluding the COVID-19 pullback) this is the biggest drawdown in the past 10 years.

The move gives an indication of too much too soon. A possible contrarian position in CBA may be approaching as it continues to fall given its strong asset growth over the past year and its $2bn on-market buyback which should soak up some selling pressure (only 10% complete). From a short-term tactical perspective, CBA looks oversold.

Fundamental valuation remains high. CBA trades on a ~1.5x PER relative to peers1 (Figure 3) and is still trading significantly above its historical PE valuation bands (Figure 2). Alongside this, CBA is also positioned to feel pressure from the upcoming rate hikes on its mortgage book more so than business banking peers like ANZ and NAB. We have a HOLD recommendation on CBA.

Figure 1: CBA share price – down 15% in 8 days

Figure 1: CBA share price - down 15% in 8 days

Source: Refinitiv, Sandstone Insights

Figure 2: CBA per above historical rate

Figure 2: CBA per above historical rate

Source: Refinitiv, Sandstone Insights

Figure 3: CBA premium per relative to peers

Figure 3: CBA premium per relative to peers

Source: Refinitiv, Sandstone Insights

1 Peers: WBC, NAB and ANZ

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