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.


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