Commonwealth Bank’s recently announced record $10.3 billion profit for fiscal year 2025 came as no surprise to Morningstar senior equity analyst Nathan Zaia. However, Zaia believes the result highlights just how overvalued the banking giant currently is. Commonwealth Bank is one of Australia’s largest financial institutions, providing a range of banking and financial services to individuals and businesses. The company operates various brands, including CommBank, Bankwest, and Colonial First State.
Despite concerns about valuation, Zaia remains upbeat about Commonwealth Bank’s medium-term prospects. He forecasts the bank’s return on equity to climb to 16 per cent by 2030, with average earnings growth of 5.5 per cent per year over the next five years. Key drivers for this growth include faster-than-market loan expansion, margin improvements, and ongoing cost savings initiatives.
The full-year dividend of $4.85, while slightly below Morningstar’s forecast of $5.00, is expected to track earnings growth. Zaia anticipates healthy provisions and surplus capital will support future payouts. Consequently, Morningstar has increased its fair value estimate for Commonwealth Bank by 2 per cent to $100, factoring in the time value of money.
Zaia stated that “In our opinion, shares are not priced for perfection but detached from the underlying fundamentals.” In recent trading, Commonwealth Bank shares experienced a decline of 0.9 per cent, following a 5.4 per cent loss in the previous session.
