There appears to be high expectations for Commonwealth Bank’s four-year outlook as Morgan Stanley factors in above-system loan growth, somewhat flat margins and cost reductions after FY23.
Added to a combination of $6.5bn in buybacks and loss rates of around -15 basis points this should drive a return-on-equity recovery to 13.5% in FY24 from 11.5% in FY21.
The broker notes the business has reversed some of the underperformance recently and the stock has risen more than 10% since the start of May.
Moreover, trading multiples are at record levels which more than reflects the superior franchise performance and Morgan Stanley retains an Underweight rating. Target is raised to $89.50 from $86.50. Industry view: In-Line.
Target price is $89.50.Current Price is $98.05. Difference: ($8.55) – (brackets indicate current price is over target). If CBA meets the Morgan Stanley target it will return approximately -10% (excluding dividends, fees and charges – negative figures indicate an expected loss).