UBS has reiterated its ‘sell’ rating for Commonwealth Bank (CBA), citing concerns over the bank’s valuation. The investment bank set a price target of $125 for CBA shares, suggesting the stock is currently overvalued. Commonwealth Bank is one of Australia’s largest financial institutions, providing a range of banking and financial services to individuals and businesses. UBS’s assessment focuses on CBA’s capacity to achieve significant productivity gains and cost reductions.
John Storey, analyst at UBS, is closely watching whether CBA can reduce its cost-to-income ratio below 40 per cent. According to Storey, this threshold is necessary to justify the bank’s premium valuation in the market. However, Storey expressed scepticism about CBA’s ability to meet this benchmark in the foreseeable future.
Despite these concerns, Storey’s analysis does acknowledge that CBA management has several strategic options available to pursue cost reductions. Storey noted that these options could potentially improve the bank’s efficiency and profitability. While UBS remains cautious on CBA’s valuation, the analyst recognises the potential for strategic initiatives to positively impact the bank’s financial performance.
In early trading, CBA shares were up 1.8 per cent, despite the ‘sell’ rating from UBS. The market’s reaction suggests that investors may have a different outlook on CBA’s prospects or are pricing in potential future improvements.
