Why the CBA share price could cross $100 this week

Posted: 25 May 2021 12:27 pm

Shares in the banking major have rebounded nearly 70% in the past year.

Shares in Commonwealth Bank (ASX: CBA) are in the spotlight again as the stock edges closer to the three-figure mark. Having crossed its previous record high earlier this month, the stock was up 0.8% at $99.51 at the time of writing.

Why the CBA share price is poised to cross the $100 level

Market experts have been predicting since 2015 that CBA shares would cross the $100 mark, but it was beaten to the draw by the mighty CSL (ASX: CSL) and even upstart Afterpay (ASX: APT). So will it cross the Rubicon this time?

The conditions certainly seem ripe. Australia’s biggest lender this month unveiled third-quarter results which showed cash profit doubling from a year ago amid a rapid economic recovery. Like its peers, that has allowed CBA to reverse bad debt provisions made during the COVID-19 pandemic.

Its operating income has increased as volumes have recovered, and business lending is growing at three times the industry average.

But it is really the home lending segment that is lifting the hopes of investors. CBA says it is tracking at the same rate as the sector, but given that it has the largest exposure to the housing market among major banks, it is in line to reap substantial benefits.

The housing market continues to have strong momentum and there is little to indicate that things could slow down in the near-term. That should enable all the major banks, including CBA, to increase dividend payout ratios and reward shareholders, analysts say.

Economists expect nearly double-digit growth in home prices this year in the largest capital cities of Sydney, Melbourne and Brisbane.

Leading recovery

An indication of the strong demand in the housing market came last week, when CBA became the first of the big four banks to lift interest rates on 3- and 4-year fixed-term loans by 0.05% for owner-occupiers and 0.10% for investor-only loans.

That seems to be quite a turnaround from last year, when CBA penciled in provisions of $1.5 billion for expected loan losses stemming from COVID-19. Fortunately, that did not materialise thanks to the strong economic recovery.

Investors have anticipated the strong numbers, reflected in the steadily rising share price. During the peak of the COVID-19 outbreak in Australia last year, CBA shares slid below $60. Since then, the share zoomed back and has now gained 68% over the last 12 months.

Its market capitalisation now stands at a whopping $174 billion, and investors are now waiting for any sign from its board of lifting dividends.

Considering buying CBA shares?

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Disclaimer: This information should not be interpreted as an endorsement of futures, stocks, ETFs, CFDs, options or any specific provider, service or offering. It should not be relied upon as investment advice or construed as providing recommendations of any kind. Futures, stocks, ETFs and options trading involves substantial risk of loss and therefore are not appropriate for all investors. Trading CFDs and forex on leverage comes with a higher risk of losing money rapidly. Past performance is not an indication of future results. Consider your own circumstances, and obtain your own advice, before making any trades.

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