The relative outperformance of the Commonwealth Bank of Australia (ASX: CBA) share price is under threat as one leading broker believes the stock will slump this Wednesday.

This is when Australian’s largest ASX-listed bank will release its quarterly earnings and update.

The news will be ugly, according to Morgan Stanley, which is predicting a 70% to 80% chance that the stock will fall relative to the S&P/ASX 200 Index (Index:^AXJO) and keep underperforming for next two months.

Cut above the rest

CBA shares have fallen 24% since the start of 2020 as the COVID-19 pandemic rocked the economy, but that’s better than the other ASX big banks.

The National Australia Bank Ltd. (ASX: NAB), Westpac Banking Corp (ASX: WBC) and Australia and New Zealand Banking GrpLtd (ASX: ANZ) share prices have tumbled by over 30% each.

The three laggards have reported dismal first half profits in the last two weeks, so the bad earnings news from CBA isn’t unexpected although that may not be the bank’s biggest problem.

Reality check

“We expect a ~30% fall in cash profit, an A$1bn COVID-19 provision and a CET1 ratio of ~11.2%,” said Morgan Stanley.

“While the profit decline and higher provisioning are unlikely to surprise investors in the current environment, we think the trading update will lead to less confidence in the capital and dividend outlook.”

This will make CBA’s market premium harder to justify.

CBA losing its crown

The bank has long held the crown of being the best quality bank on our market and investors are happy to pay a higher multiple for the stock.

For instance, CBA trades on a FY21 forecast price-earnings (P/E) multiple of 15 times and a price-to-book value (P/BV) of 1.5 times, based on Morgan Stanley’s estimates.

This compares to the average P/E of 11 times and P/BV of around 0.8 times for its peer group.

Foolish takeaway

This is why the broker thinks CBA is more vulnerable to a de-rating if the cycle deteriorates further, and offers less upside in a rebound scenario.

Morgan Stanley rates the stock as “underweight” (meaning a “sell”) with a price target of $57.50 a share.

If you want to find out more about bank valuations and the importance of P/BV, click here to read my weekend article on the cheapest bank on the ASX.

But of course, price and quality usually move in opposite directions. Those willing to pay for a relatively safer stock in the sector may want to consider Macquarie Group Ltd (ASX: MQG) instead – at least until more coronavirus water passes under the banking bridge.

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Motley Fool contributor Brendon Lau owns shares of Australia & New Zealand Banking Group Limited, Commonwealth Bank of Australia, Macquarie Group Limited, and National Australia Bank Limited. The Motley Fool Australia owns shares of and has recommended Macquarie Group Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

The post Reality bites: Broker warns CBA shares to underperform this week appeared first on Motley Fool Australia.

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The changes in our behaviour during the COVID-19 lockdown has created pandemic winners and losers up and down the S&P/ASX 200 Index (ASX: XJO).

Some of these are obvious. Companies like Qantas Airways Limited (ASX: QAN) and Sydney Airport Holdings Pty Ltd (ASX: SYD) are undoubtedly going to see a fall in full-year earnings. 

However, some are less obvious. Some companies have profited greatly during the pandemic while others may be in for a structural change to their earnings.

3 pandemic winners

ASX gold mining companies have benefited greatly from the rise in the gold price. The Evolution Mining Ltd (ASX: EVN) share price has been one of the great winners. Its share price is up 43.7% year to date (YTD). In fact, it has risen by over 60% since its low point on 16 March. Evolution has benefitted from both the rising gold price and the low Australian dollar. It is regularly one of the top 3 traded gold shares by volume on the ASX. 

JB Hi-Fi Limited (ASX: JBH) is another pandemic winner. The company has seen a rise in earnings due to the short-term rush for work-from-home accessories. Laptops, printers, monitors, keyboards. All items that are bringing trade to JB Hi-Fi’s network of stores. The company reported a 6.9% growth in YTD Q3 sales for JB Hi-Fi Australia. This is up from 4.1% during the comparable period last year.

Ansell Limited (ASX: ANN) is the Australian manufacturer of personal protective equipment (PPE) such as gloves and surgical masks. The Ansell share price has risen by 3.5% YTD. It hit a low point on March 23 and has risen by 41% since then. Ansell is one of the great pandemic winners as it is a company built for crises such as this.

3 pandemic losers

The Bapcor Ltd (ASX: BAP) share price is down by 20% YTD. Given the restrictions in place during the national lockdowns, this is to be expected. However, Bapcor may also suffer a structural reduction in earnings if work-from-home becomes widespread after the resumption of normal work.

The Oil Search Limited (ASX: OSH) share price has been devastated by the pandemic. It is currently down by 59% YTD. The company has been hit not only by the collapse in demand but also by the glut in supply from the Saudi-Russian oil price feud. The company is currently performing well in a fight for survival. Nevertheless, it will be interesting to see if it emerges as the same company it was in January.

Transurban Group (ASX: TCL) has seen its average daily traffic (ADT) percentage drop by 44% across all Transurban assets in the final week of April compared to the same period last year. If work from home becomes permanent, the company is likely to see a structural reduction in ADT% which may call into question other expansion plans. 

More reading

• ASX 200 storms 1.2% higher: Cochlear reports 60% sales decline, Webjet jumps 22%
• Are ASX retail shares undervalued today?
• 3 ASX 200 shares to watch this week
• Where to invest $20,000 into ASX shares for strong long term returns
• Are there any safe havens in ASX aviation shares?

Motley Fool contributor Daryl Mather has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Bapcor. The Motley Fool Australia owns shares of Transurban Group. The Motley Fool Australia has recommended Ansell Ltd. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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