Analysts forced to eat humble pie as CBA (ASX:CBA) share price soars 5%

The Commonwealth Bank of Australia (ASX: CBA) share price is storming higher on Wednesday morning.

At the time of writing, the banking giant’s shares are up 5% to $99.28.

Why is the CBA share price storming higher?

Investors have been bidding the CBA share price higher today after it delivered a half year profit well-ahead of the market’s expectations.

For the six months ended 31 December, Australia’s largest bank reported a cash net profit after tax of $4,746 million, which is an increase of 23% over the prior corresponding period.

As a comparison, the market was expecting cash earnings of approximately $4,500 million and the team at Goldman Sachs was forecasting cash earnings of $4,295 million. The latter means CBA outperformed the broker’s estimates by over 10%.

Its analysts note that the outperformance was driven largely by its non-interest income, which rose 4.1% over the prior corresponding period. This reflects improved volume related lending and deposit fee income, the non-recurrence of prior period aircraft impairments, and higher net profits from minority interests.

Goldman commented: “CBA’s 1H22 cash earnings (company basis) from continued operations of A$4,746 mn were 10.5% ahead of our expectations, and up 22.7% on pcp. The beat was driven by outperformance on non-interest income (albeit components of this appear somewhat one-off in nature), expenses and BDDs, and expenses, partially offset by lower NIMs. Net net, this drove a +5.5% beat at the PPOP [pre-provisioning operating profit] line.”

Goldman Sachs, like many brokers, has been tipping CBA’s shares as a sell and to sink notably lower. But today’s outperformance could force many brokers into amending their price targets and even their recommendations.

CBA to return more capital to shareholders

Also giving the CBA share price a boost today was news that it will follow up its $6 billion off-market buyback with a new $2 billion on-market buyback.

Management advised that it is undertaking this buyback due to its strong capital position. This strength has put the bank in a position to support customers and manage ongoing uncertainties, while continuing to return surplus capital to shareholders.

This buyback is expected to reduce CBA’s CET1 capital ratio by approximately 42 basis points to 11.4%, which is still well-ahead of APRA’s unquestionably strong benchmark of 10.5%. It will also remain well-placed to accommodate changes under APRA’s new capital framework effective in 2023.

As well as the buyback, CBA will be returning capital to shareholders via its fully franked interim dividend. The CBA board has increased its interim dividend by 17% to $1.75 per share. This will be paid to eligible shareholders on 30 March.

Following today’s gain, the CBA share price is now up almost 14% over the last 12 months.

The post Analysts forced to eat humble pie as CBA (ASX:CBA) share price soars 5% appeared first on The Motley Fool Australia.

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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