Icarus Signal: CBA Not Attractive

This story features TELSTRA GROUP LIMITED, and other companies. For more info SHARE ANALYSIS: TLS

Update on share prices and consensus price targets.

By Rudi Filapek-Vandyck

One would have to be either a hard core fan or in possession of a sophisticated dividend strip strategy to jump on board the CommBank ((CBA)) shares train at these price levels, FNArena's Icarus Signal suggests. Not only has the Price-Earnings ratio rallied to 12.5, which is about as high as it's ever been in the post-2007 era, but growth for this year and next remains elusive according to consensus estimates. Even if we were to assume there is potential upside to those very low estimates of a slight negative growth figure for this year and a slightly positive anticipation for next year; how much upside is feasible given circumstances are what they are?

Another way to look at CBA shares is through the gap between share price and consensus price targets and here the picture hardly improves. As of yesterday's closing price (expected to decline today), CBA shares at $54.78 are no less than 4.2% above consensus target of $52.47. Take out the dividend in the upcoming reporting season and the fact that targets might lift a bit as analysts will be "rolling forward" their valuations (on low sector earnings in general), all that still leaves investors today with the reasonable assumption that buying CBA shares at present mid-$50 price levels pretty much concentrates future investment returns around the payout of dividends to shareholders in the twelve months ahead.

And, of course, in line with how volatile the share market has been in the post-2007 era, there's no guarantee the share price won't be lower -temporarily or not- by September next year. Given all this, one would have to assume the present market's focus on dividends, which has also kept positive momentum under the share price of Telstra ((TLS)) and Tatts ((TTS)), to name but two other examples, has been the main driver behind the CBA share price.

Note also how CBA's relative valuation has recently blown out in comparison with ANZ Bank ((ANZ)), while Westpac ((WBC)), which pays a considerably higher dividend than both ANZ and CBA, has been the relative outperformer of late. National Australia Bank ((NAB)) remains the perennial underperformer and might well remain in that position until -finally- those troubled UK assets will be relegated to someone else's ownership. But who's willing to buy, let alone offer a reasonable price?

For the record: Westpac shares are still below target, but only by some 2% and the dividend payout is anticipated to exceed 7.5% next year, supported by expectations of low single digit growth in cash earnings. That leaves next year's PE ratio at 10.7. Pre-2007 that would have been considered "cheap". Since then such a number has become more of a regular occurrance, which simply adds to the picture above: be careful in chasing the banks at current prices, unless you simply are satisfied with the dividends on offer (as that might be the only return ahead from present levels).

Meanwhile, no less than eleven stocks landed on Icarus radar yesterday as share prices moved closer to price targets, including regional lender Bendigo and Adelaide ((BEN)), Mortgage Choice ((MOC)) and Platinum Asset Management ((PTM)). All this leaves us with a rather uneasy feeling that the wider financial community has finally succumbed to what appears to be a subdued outlook overall and dividend payers have become the new rage. We see the formation of the next market bubble.

Investors take note

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 ASB $ 1.63 $ 1.63 0.00% 2 BVA $ 0.15 $ 0.15 0.00% 3 tcl $ 6.07 $ 6.08 0.23% 4 SYD $ 3.02 $ 3.04 0.60% 5 BKL $ 28.50 $ 28.68 0.62% 6 TGR $ 1.25 $ 1.26 1.20% 7 SMX $ 5.70 $ 5.78 1.33% 8 DTL $ 1.20 $ 1.22 1.67% 9 DWS $ 1.55 $ 1.58 1.94% 10 BEN $ 8.02 $ 8.22 2.53% 11 REX $ 1.19 $ 1.22 2.95%

Stocks Above Consensus

Order Symbol Current Price($) Consensus Target($) Difference(%) 1 PTM $ 3.63 $ 3.59 – 1.02% 2 MOC $ 1.42 $ 1.40 – 1.41% 3 WTP $ 0.74 $ 0.71 – 3.40% 4 OMH $ 0.42 $ 0.39 – 6.02% 5 BBG $ 1.32 $ 1.16 – 11.86%

Top 50 Stocks Furthest from Consensus

Order Symbol Current Price($) Consensus Target($) Difference(%) 1 PVM $ 0.75 $ 1.37 82.67%

To see the full Icarus Signal, please go to this link

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