Icarus Signal New Entries For Today: Big Four Banks

This story features WESFARMERS LIMITED, and other companies. For more info SHARE ANALYSIS: WES

Daily update on share prices and consensus price targets.

By Rudi Filapek-Vandyck

It doesn't take a genius to figure out why share prices of Australia's banks are finding the grind uphill tougher as each day passes. Not only is the share market in general at eight months' peak levels, bank share prices are testing the limitations as set by consensus price targets. Is it pure coincidence then that the only bank that has been trading above target of late -ANZ Bank ((ANZ))- has started to underperform its peers?

Judging by today's price action, headwinds have already started to make themselves felt. CommBank ((CBA)) has today joined ANZ Bank, with the CBA share price rising above target on the back of a positive research report by JP Morgan, but others find the going is getting tougher. In the background there are similar conclusions being drawn by analysts at major stockbrokerages. Here's what Deutsche Bank pointed out this morning:

"Bank valuations are looking stretched. Their discount to the market has narrowed, and they are on a substantial PB [price to book value] and PE premium to global peers".

As I pointed out in earlier writings, three out of the Big Four are about to announce interim results and they will subsequently pay out in excess of 3% in dividends to their shareholders in the coming weeks. This means there's an extra valuation kicker of circa 3% that needs to be taken into account this time around. Will that be enough for bank share prices to hold up when those dividends are being paid out?

More importantly: the past ten years have shown that when banks become too expensive, it's not just the banks that correct to more attractive price levels; they tend to drag the broader market down as well. Remember: indices are at eight months highs.

There is one obvious remedy against all of the above and that is if banks' interim results surprise to the upside and analysts at stockbrokerages are forced to raise their forecasts and their valuations and price targets. But what are the odds of this happening? Citi analysts on Friday lowered their sector estimates ahead of the results.

Meanwhile, Monadelphous ((MND)) and Wotif ((WTF)) are swiftly recovering from earlier peak share price levels, again approaching consensus target alongside the likes of Charter Hall ((CHC)), St Barbara Mines ((SBM)) and Transurban ((TCL)). There are now 48 companies trading near target, with a further 65 trading above target. I haven't exactly kept score, but I expect these numbers to be the highest since we launched the Icarus Signal in 2010.

Stock trading above target include Invocare ((IVC)), Domino's Pizza ((DMP)), Wesfarmers ((WES)) and Sydney Airport ((SYD)).

In the Bottom 50, Bathurst Resources ((BTU)) has now joined the likes of Alchemia ((ACL)), Ampella Mining ((AMX)), Gindalbie Metals ((GBG)) and Kagara ((KZL)).

Investors should consider the information and data are provided for research purposes only.

Stocks <3% Below Consensus

Order Symbol Current Price($) Consensus Target($) Difference(%) 1 MND $ 23.17 $ 23.18 0.03% 2 CSV $ 0.69 $ 0.69 0.43% 3 CHC $ 2.50 $ 2.52 0.72% 4 SBM $ 2.28 $ 2.30 0.88% 5 TEN $ 0.81 $ 0.83 1.98% 6 GEM $ 0.96 $ 0.98 2.09% 7 WTF $ 4.42 $ 4.52 2.35% 8 ABP $ 2.10 $ 2.15 2.52% 9 TSE $ 2.27 $ 2.33 2.56% 10 tcl $ 5.87 $ 6.02 2.61% 11 TRU $ 5.26 $ 5.41 2.85%

Stocks Above Consensus

Order Symbol Current Price($) Consensus Target($) Difference(%) 1 CBA $ 51.96 $ 51.76 – 0.38% 2 NUF $ 4.92 $ 4.89 – 0.55% 3 SDG $ 0.77 $ 0.76 – 0.65%

Top 50 Stocks Furthest from Consensus

Order Symbol Current Price($) Consensus Target($) Difference(%) 1 BTU $ 0.64 $ 0.97 51.81%

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