Commonwealth Bank shares break through $100 for first time

CBA shares have hit an all-time high as investors bank on capital returns, but analysts are split on where it will go from here.

CBA CEO Matt Comyn. Picture: Adam Yip

CBA shares have broken through the $100 barrier for the first time as investors count on bumper capital returns in the coming months, but analysts are split on where the share price can go from here.

CBA shares have powered ahead in recent weeks, surging 12 per cent in May alone after the nation’s largest bank reported strong lending growth and lower pandemic-related loan impairments in the third quarter, boosting its earnings and setting the scene for it to start returning more than $10bn in excess capital to investors.

Its shares hit an all-time high of $100.20 in early trade before dipping back slightly and were sitting at $99.84 minutes before the close.

With a market capitalisation of $176.7bn, CBA is the largest company on the ASX and the first of the big four banks to breach the $100-a-share mark. It is also now the 11th biggest bank in the world by market cap.

The big question, for investors, is where to from here.

Cyan Investment Management founder and portfolio manager Dean Fergie says there is every chance the shares could push even further past $100 in the near term, with the run on the stock creating its own momentum.

“What we’ve seen in the last two to three weeks, especially with fluctuations in bitcoin and the smaller end of the market faltering, is a real rotation into the big blue-chip stocks,” he said.

“When you’ve got a big stock like this that’s going strong and becoming a larger part of the index, you’re going to see underweight investors start to underperform, and you end up with buying activity that flows into these stocks and sends them higher.

“The single biggest stock in the index having a strong run, I think, will create its own demand and I would expect to see it continue to track higher.”

But Velocity Trade senior banking and insurance analyst Brett Le Mesurier sees the stock hovering around the $100 mark in the near term, with higher margins, better loan growth and a better outcome on expenses needed before the next leg up.

While the stock is now trading at Mr Le Mesurier’s $100 price target, Morningstar banking analyst Nathan Zaia sees it as slightly overvalued.

“Still, I can understand why investors are looking at CBA, looking at the dividend yield and what sort of return they can expect to get out of CBA shares versus putting it in a term deposit.

“The dividend outlook is good, especially given how much excess capital they’re sitting on. And there is room to move on their payout ratios. So if you’re looking for income, (CBA) looks okay in the near term.”

Investors are counting on CBA CEO Matt Comyn unveiling a share buyback at the full-year result in August but there is also the prospect of more than one round of capital returns, since the lender is holding on to a capital surplus of $11.5bn.

At the same time, there is no guarantee of a buyback or special dividend: CBA at its quarterly update said it would depend on economic conditions, the bank’s ongoing assessment of credit quality, and guidance from regulators.

While the shares have had a mammoth run of late, they have been steadily moving higher over the past year.

The lender’s shares have surged 75 per cent from their Covid-19 lows amid the rapidly improving economy and widespread property market boom.

With the largest exposure to the housing market, CBA is reaping the benefits. The bank’s boss Matt Comyn in April argued against any measures to curb the property price rises, saying the current boom was much lower risk than previous cycles.

Experts, including economists at CBA, are tipping double digit gains this year.

The lender is also pushing hard into rival National Australia Bank’s territory, luring more business customers as it looks to unseat its peer as the nation’s top business bank.

As part of its assault, CBA has been working to double the number of business bankers in its branches, while also simplifying credit processes.