Commonwealth Bank (ASX:CBA): Valuation in Focus Following AI Job Reversal and Surge in Home Loan Demand

If you’re keeping tabs on Commonwealth Bank of Australia (ASX:CBA), the last few weeks have delivered plenty to think about. The bank’s reversal of 45 job cuts, initially made after introducing an AI chatbot to its call centres, signals the challenges of balancing tech innovation with customer and staff needs. On top of this, CBA has rolled out fresh interest rate cuts for home loan customers. This move coincided with a surge in home loan pre-approvals, suggesting positive momentum in borrower sentiment.

All these changes arrive against a backdrop of solid performance this year. For context, CBA shares have climbed over 26% during the past 12 months. While the short-term share price has edged down in the past month, the bank’s longer-term return picture remains strong, with nearly doubled value over three years. Recent events such as the job reversal, dividend lift, and buyback extension are all contributing to heightened market attention. These factors raise fresh questions about the sustainability of growth and efficiency gains.

With this wave of news and share price momentum, investors may be considering whether there is a real buying opportunity, or if the market has already priced in the bank’s rebound and growth ambitions.

Most Popular Narrative: 45.8% Overvalued

According to community narrative, Commonwealth Bank of Australia appears heavily overvalued when measured against analyst expectations for future growth, margins, and earnings. The current consensus price target is well below recent share prices, indicating a disconnect between market optimism and analyst valuation models.

Analysts have a consensus price target of A$116.844 for Commonwealth Bank of Australia based on their expectations of its future earnings growth, profit margins, and other risk factors. There is some disagreement among analysts, with the most bullish reporting a price target of A$146.0 and the most bearish reporting a price target of just A$100.0.

What is fueling such a dramatic valuation gap? The community’s narrative points to ambitious growth expectations and a profit profile rarely seen in the banking sector. Which core assumptions drive this standout pricing call, and why do analysts think the risks may outweigh the rewards this time? Explore the figures behind the narrative's forecast and see which growth targets would need to be met for bullish investors to succeed.

Result: Fair Value of $116.84 (OVERVALUED)

Have a read of the narrative in full and understand what's behind the forecasts.

However, stronger-than-expected productivity gains from CBA's digital investments, or continued growth in lending, could quickly alter this cautious valuation outlook.

Find out about the key risks to this Commonwealth Bank of Australia narrative.

Another View: Discounted Cash Flow

For a different lens on value, our DCF model approaches things from projected future cash flows rather than analyst targets. It currently suggests the shares are not cheap either. How does this change your take?

Look into how the SWS DCF model arrives at its fair value.

Simply Wall St performs a discounted cash flow (DCF) on every stock in the world every day (check out Commonwealth Bank of Australia for example). We show the entire calculation in full. You can track the result in your watchlist or portfolio and be alerted when this changes, or use our stock screener to discover undervalued stocks based on their cash flows. If you save a screener we even alert you when new companies match - so you never miss a potential opportunity.

Build Your Own Commonwealth Bank of Australia Narrative

If you’re inclined to challenge these perspectives or want to investigate the figures first-hand, you can build your own view in just a few minutes, or simply do it your way.

A great starting point for your Commonwealth Bank of Australia research is our analysis highlighting 2 key rewards and 2 important warning signs that could impact your investment decision.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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