Commonwealth Bank has spent the last 12 months doing exactly what its long-term owners have come to expect, delivering a sector-leading 1H26 result, rallying around 16% in February as accelerating lending and deposit volumes landed well, and pushing back toward its all-time highs. The franchise quality is not in question. What is in question is whether the share price at A$173.76 reflects the strength of the franchise or the story investors are telling themselves about a return to pre-COVID operating performance, and on our numbers it is increasingly the latter. We maintain a Sell rating on CBA with a 12-month price target of A$137.85, implying roughly 20.7% downside from the current price.
Research published 13 March 2026. Price target and downside based on prices at time of publication.
About Commonwealth Bank
Commonwealth Bank of Australia (ASX CBA) is an APRA-regulated authorised deposit-taking institution and the largest bank in the country, with a market capitalisation of roughly A$288 billion. The bank was established in 1911 as a federal government enterprise and, through a series of scale-building acquisitions over subsequent decades including the State Bank of Victoria, the State Bank of NSW via Colonial, Auckland Savings Bank in New Zealand and Bankwest, has become the dominant retail banking franchise in Australia. Its business today spans retail banking, business banking, institutional banking and markets, and New Zealand operations under the ASB brand, with a product suite covering home loans, transaction and savings accounts, credit cards, personal and business lending, equipment finance, insurance, wealth and institutional services. More information at commbank.com.au.
The 1H26 Result and the February Rally
CBA’s 1H26 result was the standout in the February reporting season. Lending and deposit volumes accelerated across the business, net interest margins held flat despite an intensely competitive mortgage market, and the combination delivered the most consistent revenue momentum any of the majors have produced in years. The share price responded accordingly, adding roughly 16% during the month to recapture levels not far off its all-time highs near A$190.71 set in June 2025. The result gave long-standing CBA holders everything they were looking for, and reinforced a view the market has held for years, that the largest Australian bank is also the best-run.
That is where we and the broader market start to part ways. The 1H26 result was a strong print, but it also stood out as a notable outlier in the context of CBA’s last five years. When we strip back to underlying pre-provision operating profit and look across the 2021 to 2026 window, the performance gap between CBA and the average of its three major peers has essentially closed. The question then becomes whether 1H26 marked the start of a durable return to pre-Royal Commission form, or a good half inside a more pedestrian five-year trend. On a 26x price-to-earnings multiple against a peer group sitting around 18x, that distinction matters a great deal.
Five-Year Performance Has Mean-Reverted to Peers
The most important point in this piece is also the one that gets talked about the least. Across FY21 to FY26E, CBA’s pre-provision operating profit on an ex-notables basis has grown at 4.7% per annum. The average of the three major peers has also grown at 4.7% per annum. Revenue growth at CBA has been slightly ahead at 4.4% versus 4.2%, and lending growth has actually been slightly behind, with CBA at 5.0% versus peers at 5.2%. Cost-to-income ratios tell the same convergence story, with CBA’s CTI rising from 44.6% in FY21 to an expected 44.7% in FY26E, while peers have closed their gap from 49.5% to 48.7% over the same period.
CBA’s cash earnings per share growth has run a little hot at 6.3% per annum versus 5.0% for peers, but the drivers are not what most investors assume. A meaningful portion of that outperformance comes from the unwind of CBA’s conservative CET1 settings through capital returns, combined with lower bad and doubtful debt provisioning that was set heavily during the COVID years. Neither is a sustainable operational lever, and both are running out of room. When those effects are stripped out, the underlying operating performance across the last five years is much closer to peer average than the multiple premium would suggest.
The Fifteen-Year Case Cuts Both Ways
The bull case on CBA typically reaches back beyond the five-year window, and on that measure the franchise quality is real and hard to argue with. Over FY11 to FY26E, CBA has grown average loans at 4.3% per annum against 3.8% for peers, delivered revenue CAGR of 2.9% against 1.9%, and compounded cash EPS at 2.8% against just 0.5% for the peer average. The arithmetic of those numbers is exactly what long-term holders have been paid for. That 0.5% versus 2.8% differential over 15 years has compounded into a revenue base around 16% higher than peers and a cash EPS base roughly 40% higher.
Our issue is not with the 15-year record, it is with using it to underwrite today’s multiple. The bulk of that compounding effect was delivered in the period up to 2018, before the Royal Commission and the COVID-era structural changes to Australian banking profitability. The post-2021 data is what investors are actually being asked to pay for, and that data looks a lot more like a peer. The longer track record is the reason to own CBA at an appropriate premium to the sector, not at a 40% premium to the sector.
The Tech Investment Phase and What It Means for Margins
Like its peers, CBA has been running a heavy technology investment programme. Total investment spend has climbed from A$1.9 billion in FY22 to an expected A$2.4 billion in FY26E, focused on engineering insourcing, migration to the cloud and, more recently, generative AI capability. Unlike Westpac’s United platform project or ANZ’s Plus re-platforming, CBA has not needed to rebuild its core, which has allowed management to direct more of the spend into productivity initiatives rather than catch-up infrastructure. On the generative AI side, CBA is running ahead of the sector and is likely to be the first of the majors to extract a meaningful cost benefit at scale.
The catch is timing. We expect the CTI to stay in the mid-44s through FY26 and FY27, in line with the current investment phase, before beginning a more sustained decline as GenAI and cloud capability translate into workflow cost reductions. That is consistent with the trajectory the bank followed in the pre-Royal Commission era, when CBA ran CTI down toward 40% and delivered the operating leverage that built its current premium. We agree the same outcome is achievable, but the productivity payoff sits out beyond our 12-month horizon and, on the current spending profile, probably beyond FY27 as well. For that reason, our 12-month view is set against a period when the investment drag is still dominant.
Valuation Is Where the Thesis Sits
CBA is trading at around 26x forward earnings, against a peer group closer to 18x. That premium of roughly 40% is at historic levels on both a global and local basis, and has been sustained by a combination of strong passive fund inflows into the largest ASX name, the 1H26 result momentum, and the narrative that CBA is about to repeat its pre-COVID trajectory. Our modelling has cash earnings per share sitting at A$6.61 in FY26, A$6.90 in FY27 and A$7.11 in FY28. On those numbers, the stock at A$173.76 is trading on a price-to-earnings ratio of 26.3x on FY26, 25.2x on FY27 and 24.4x on FY28. Return on equity is expected to run at 13.3% in FY25 climbing to 14.7% by FY28, and dividend yield sits around 3.0%.
Our 12-month price target of A$137.85 is built on a blended approach, with 50% weight to a DCF valuation of A$114.53, and 50% weight to a relative price-to-earnings valuation of A$161.17 using a sector-derived multiple of 23.4x applied to our blended forward earnings forecast. The DCF captures the long-duration earnings case on current assumptions. The relative PE captures the reality that CBA trades as part of an Australian banking sector, not in a vacuum. At A$173.76, the stock is priced ahead of both of those anchors and, in our view, ahead of the revenue and earnings benefits that the current tech investment programme may eventually deliver. The downside to our price target is 20.7%.
What Would Change Our View
There are two conditions that would move us off the Sell call. The first is stronger cost control translating into positive revenue-cost jaws before the productivity era really arrives. If CBA is able to accelerate the GenAI rollout and pull some of the FY29 and beyond CTI benefits forward into FY27, the near-term earnings trajectory would shift and the current multiple would become easier to defend. The second is a material recovery in revenue growth, either from mortgage market share gains or from more favourable pricing outcomes as the rate cycle evolves. A higher RBA cash rate path could also support revenue, though we note the same higher-rate environment would reintroduce deposit and mortgage competition dynamics that have weighed on sector revenue since 2022.
On the downside, the risks to our numbers are a continuation of stronger-than-expected near-term cost growth as the tech transformation accelerates, and any slippage in loan or deposit momentum coming out of the 1H26 half. Neither of those would materially change our 12-month price target, but both would be relevant to the timing of any re-rating.
Our View
Commonwealth Bank remains the strongest banking franchise in Australia, and over any reasonable long-term window that franchise strength is real and quantifiable. The issue is that the current share price is not being set against a long-term window, it is being set against a single strong reporting period, a pre-COVID comparison that pre-dates the structural changes to Australian banking, and a tech investment payoff that our work suggests is still at least a year or two away. At 26x forward earnings and a 40% premium to a peer group that has matched CBA on pre-provision profit growth over the last five years, the share price is pricing in a return to form that the operating numbers do not yet support. The rating remains Sell with a 12-month price target of A$137.85, implying roughly 20.7% downside from A$173.76.
If you would like to discuss Commonwealth Bank or any other stock in more detail, you can book a time at our call back page or phone us on 1300 889 603.
