CBA share price: Morgan Stanley outlook sours as 2019 earnings loom

Here’s everything you need to know about Morgan Stanley’s latest research report on the Commonwealth Bank of Australia (ASX: CBA).

As lower interest rates weigh on the outlook of the big four banks, the Commonwealth Bank of Australia (ASX: CBA) has seen its share price trend mostly flat ahead of its 2019 full-year results.

Commonwealth Bank share price at a peak?

Just last week, the investment bank Morgan Stanley lowered their price target on the Commonwealth Bank of Australia from A$67.50 per share to A$66.50 per share.

At CBA’s current price of A$81.88 per share, that would imply a potential decline of approximately 18%.

The expectation of weaker loan growth, the impact that low interest rates will have on the big four’s margins, and Morgan Stanley's opinion that we could be on the verge of witnessing an ‘earnings downgrade cycle' all contributed to this lowered price target.

UBS has taken a similarly bearish view on CBA, and currently has a price target of just $A72.00 per share of the bank.

Earnings in limbo

Overall, Morgan Stanley has downgraded the earnings outlook on the big four banks by an average of 3% for the 2020 and 2021 financial years.

This bearish outlook, argues Morgan Stanley, is primarily driven by the RBA’s recent decision to cut the official interest rate to a historic low of 1.00%.

While Morgan Stanley recognises the high quality of CBA’s retail banking arm – the RBA’s decision to cut rates to a historic low; has, in in Morgan Stanley’s view, created significant downside risk for the bank’s margins moving forward.

The bank's dividend in focus

The Commonwealth Bank of Australia's impressive dividend yield of 5.25% is likely one of the main reasons that CBA remains one of the most heavily traded stocks in Australia.

With that in mind then, and potentially of most concern to retail investors, is Morgan Stanley’s view that CBA may cut its dividend in the 2020 financial year.

As such, investors are likely to closely watch any commentary CBA makes around its dividend as well as any future dividend plans, when it releases its 2019 report Wednesday.

To read our previous coverage of CBA's 2019 full-year results, set to be released in just two days, click here now.

IGA, may distribute information/research produced by its respective foreign affiliates within the IG Group of companies pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the research is distributed in Singapore to a person who is not an Accredited Investor, Expert Investor or an Institutional Investor, IGA accepts legal responsibility for the contents of the report to such persons only to the extent required by law. Singapore recipients should contact IGA at 6390 5118 for matters arising from, or in connection with the information distributed.

The information/research herein is prepared by IG Asia Pte Ltd (IGA) and its foreign affiliated companies (collectively known as the IG Group) and is intended for general circulation only. It does not take into account the specific investment objectives, financial situation, or particular needs of any particular person. You should take into account your specific investment objectives, financial situation, and particular needs before making a commitment to trade, including seeking advice from an independent financial adviser regarding the suitability of the investment, under a separate engagement, as you deem fit.

Please see important Research Disclaimer.

Seize a share opportunity today

Go long or short on thousands of international stocks.

  • Increase your market exposure with leverage
  • Get spreads from just 0.1% on major global shares
  • Trade CFDs straight into order books with direct market access

Live prices on most popular markets

  • Forex
  • Shares
  • Indices
liveprices.javascriptrequired
liveprices.javascriptrequired

Prices above are subject to our website terms and agreements. Prices are indicative only. All shares prices are delayed by at least 15 mins.

liveprices.javascriptrequired

Prices above are subject to our website terms and agreements. Prices are indicative only. All shares prices are delayed by at least 20 mins.

The Momentum Report

Get the week’s momentum report sent directly to your inbox every Monday for FREE. The Week Ahead gives you a full calendar of upcoming key events to monitor in the coming week, as well as commentary and insight from our expert analysts on the major indices to watch.

For more info on how we might use your data, see our privacy notice and access policy and privacy webpage.

You might be interested in…

Find out what charges your trades could incur with our transparent fee structure.

Discover why so many clients choose us, and what makes us a world-leading provider of CFDs.

Stay on top of upcoming market-moving events with our customisable economic calendar.