---
endpoint: analytics
pattern: Financial Services
status: done
latency_ms: 159973
conversation_id: 719a8baa-a470-4524-9bb4-8ce845942fc0
citations: 8
created: 2026-05-31 20:40:28Z
---

# How does CBA’s valuation compare to peers, and what justifies its premium/discount?

# CBA's Valuation vs Peers — Premium Justification and Sustainability

## 1. The Headline Premium (CLSA, 20-Jun-2025)

CBA trades at an **extreme premium** to its Big-Four peers on virtually every conventional valuation metric. According to CLSA's June 2025 sector note, CBA is the only major Australian bank rated **Underperform** — the entire premium argument is now under stress.

### Current valuation snapshot (as of 20-Jun-2025) [1]

| Metric | ANZ | CBA | NAB | WBC |
|---|---|---|---|---|
| Current price (A$) | 28.39 | **182.53** | 38.91 | 33.21 |
| CLSA target (A$) | 31.20 | **143.00** | 33.90 | 27.50 |
| Up/(down)side | +9.9% | **(21.7%)** | (12.9%) | (17.2%) |
| Long-term avg 12m P/B | 1.6x | **2.1x** | 1.7x | 1.8x |
| Premium/(discount) to LT P/B | (19%) | **+43%** | (6%) | (29%) |
| Long-term avg 12m P/E | 11.9x | **14.1x** | 11.8x | 12.7x |
| Premium/(discount) to LT P/E | +13% | **+70%** | +27% | +10% |
| Target P/B multiple | 1.30x | **3.00x** | 1.60x | 1.30x |
| Target P/E multiple | 13.5x | **24.0x** | 15.0x | 14.0x |

CLSA explicitly quantifies the dislocation: **CBA is trading at c.29.1x forward PE versus the peer average of c.15.7x (excluding CBA)** — i.e., roughly **85% above the peer average earnings multiple** [2]. The premium has stretched so far that even applying a 3.0x target P/B (versus a 2.1x long-term average) and a 24x target P/E (versus a 14.1x long-term average) still implies **~21.7% downside** from the prevailing share price [1][3].

---

## 2. What Justifies a Premium — the Bull Case Built Into CBA

CLSA explicitly acknowledges that CBA's franchise quality earns a structural premium. The justifications are real and observable:

- **Best-in-class ROE and capital return.** CBA management itself emphasises that its "combination of a high return on equity and strong payout ratio continues to compare favorably with domestic and global banking peers" [8]. CLSA echoes this: "CBA is Australia's premium bank with the highest ROE, great deposit franchise, best technology platform, peer leading provisioning, elevated capital levels and impressive leadership team" [2].

- **Superior deposit franchise.** CBA's stickier, lower-cost deposit base has been the long-running point of differentiation that peers have failed to close "through the decades" — a structural advantage that supports both NIM and franchise durability.

- **Growth above system in the high-margin segments.** CBA is "growing above system in higher margin SME lending and around system in mortgages now returns have slightly improved" [2].

- **Technology / AI leadership.** CLSA cites the "best technology platform" among the majors as a multiple-supporting attribute [4].

- **Passive / superannuation flow tailwind.** A meaningful share of the premium is mechanical: as Australia's largest-cap bank, CBA absorbs disproportionate index-fund and superannuation inflows. CLSA flags **"continued positive flows from index funds and superannuation"** as the primary upside risk to its bearish stance [3].

These attributes are why CLSA applies a target P/B of **3.0x** to CBA (vs 1.30x for ANZ/WBC and 1.60x for NAB) and a target P/E of **24x** (vs 13.5x–15x for peers) [1][3]. In other words, CLSA is *already* pricing in CBA as deserving roughly **2x the multiple of its peers** on a target basis — yet the current price is still richer than that.

---

## 3. Where the Premium Looks Stretched — Peer Justification Detail

Peer multiples and CLSA's reasoning for why CBA's premium *cannot* widen further:

- **ANZ (O-PF, +9.9% upside)** — Target P/B 1.30x vs LT 1.6x, target P/E 13.5x vs LT 11.9x [5]. Cheapest of the four on relative-to-LT-average basis; preferred pick on the back of new CEO Nuno Matos and self-help on costs / non-financial risk.
- **NAB (HLD, -12.9%)** — Target P/B 1.60x vs LT 1.7x, target P/E 15x vs LT 11.8x [6]. CLSA notes "NAB has a solid ROE which should see it trade at a premium to ANZ and WBC" — i.e., NAB is the *secondary* premium name, validating that the franchise-quality argument is recognised in peer pricing.
- **WBC (U-PF, -17.2%)** — Target P/B 1.30x vs LT 1.8x, target P/E 14x vs LT 12.7x [7]. Capital optimisation and project Unite are tailwinds but material benefits don't flow through until FY28-29.

The relative spread is the key insight: **CBA's 3.0x target P/B vs ANZ/WBC's 1.30x means CLSA is willing to pay 2.3x more book-value per dollar of equity for CBA than for the cheapest majors** — and the market is still asking for more.

---

## 4. Why the Premium Is Now Vulnerable (CLSA's Bear Case)

CLSA's Underperform call rests on a thesis that the very tailwinds inflating CBA's premium are reversing:

1. **Rate cuts compress earnings.** "With more rate cuts on the horizon, we see more earnings headwinds coming for CBA and the sector" [2][4]. CBA's 79% deposit-funded mix amplifies sensitivity to deposit-side competition and replicating-portfolio tractor reinvestment dynamics.

2. **Mathematical ceiling on the premium.** A 70% premium to long-term P/E and 43% premium to long-term P/B leaves no further multiple expansion room — incremental upside requires earnings growth that CLSA's rate-cut thesis explicitly contradicts.

3. **Competitive intrusion at the deposit franchise.** Macquarie's deposit-share growth has been the most rapid by any competitor in the last five years, and AI-enabled deposit-routing tools could erode the stickiness of CBA's no/low-cost deposit base — directly attacking the structural advantage that earns the premium.

4. **Positioning unwind risk.** CLSA observes that "some investors are neutralising their bets and hedge funds are largely avoiding," suggesting marginal demand is thinning [2].

5. **Buyback runway slowing.** Sector capital generation slowing into FY26 reduces the buyback bid that has helped underpin valuations.

---

## 5. Synthesis

| Question | Answer |
|---|---|
| Is CBA at a premium? | Yes — extreme: ~29x fwd P/E vs ~15.7x peer-average, +70% above its own LT P/E, +43% above its own LT P/B [1][2] |
| What justifies a premium? | Highest ROE among majors [2][8], superior deposit franchise, best tech platform, peer-leading provisioning, index/super flow tailwind [3] |
| Is the *current* premium justified? | Not according to CLSA — even applying premium multiples (3.0x P/B, 24x P/E that already embed franchise quality), implied fair value is **A$143** vs A$182.5 traded, ~21.7% overvalued [1] |
| What could break the premium? | Rate cuts compressing earnings, Macquarie/AI eroding deposit franchise, buyback slowdown, hedge funds avoiding [2][4] |
| Order of preference (CLSA) | ANZ > NAB > WBC > **CBA** |

The premium is *qualitatively* justified by genuinely superior franchise economics, but *quantitatively* the multiple has decoupled from those fundamentals — CBA is priced as if it deserves both the structural premium and continued cyclical tailwinds, when the cyclical leg (rates, credit growth, buybacks) is turning into a headwind.

---

**Sources**
[1] Australian banks (ANZ the one to watch) — CLSA (20-Jun-2025) — major bank target prices, P/B and P/E framework table — 607962478LinqAlpha.PDF
[2] Australian banks (ANZ the one to watch) — CLSA (20-Jun-2025) — CBA Underperform thesis, c.29.1x fwd PE vs peer ~15.7x, premium franchise qualitative justification — 607962478LinqAlpha.PDF
[3] Australian banks (ANZ the one to watch) — CLSA (20-Jun-2025) — CBA valuation methodology, 3.0x target P/B vs 2.1x LT, 24x target P/E vs 14.1x LT, index/super flow upside risks — 607962478LinqAlpha.PDF
[4] Australian banks (ANZ the one to watch) — CLSA (20-Jun-2025) — CBA investment thesis: "Australia's premium bank with a higher ROE, active buyback and best technology platform"; rate-cut headwind framing — 607962478LinqAlpha.PDF
[5] Australian banks (ANZ the one to watch) — CLSA (20-Jun-2025) — ANZ valuation framework (1.30x P/B, 13.5x P/E) — 607962478LinqAlpha.PDF
[6] Australian banks (ANZ the one to watch) — CLSA (20-Jun-2025) — NAB valuation framework (1.60x P/B, 15x P/E) — 607962478LinqAlpha.PDF
[7] Australian banks (ANZ the one to watch) — CLSA (20-Jun-2025) — WBC valuation framework (1.30x P/B, 14x P/E) — 607962478LinqAlpha.PDF
[8] CBA Q2 FY26 Earnings Call — Commonwealth Bank of Australia (10-Feb-2026) — CFO Alan Docherty on ROE / payout vs domestic and global banking peers

## Citations

- [1] **607962478LinqAlpha.PDF** · clsa — <s3://ext-linq-rms-clsa/2025/06/607962478LinqAlpha.PDF>
- [2] **607962478LinqAlpha.PDF** · clsa — <s3://ext-linq-rms-clsa/2025/06/607962478LinqAlpha.PDF>
- [3] **607962478LinqAlpha.PDF** · clsa — <s3://ext-linq-rms-clsa/2025/06/607962478LinqAlpha.PDF>
- [4] **607962478LinqAlpha.PDF** · clsa — <s3://ext-linq-rms-clsa/2025/06/607962478LinqAlpha.PDF>
- [5] **607962478LinqAlpha.PDF** · clsa — <s3://ext-linq-rms-clsa/2025/06/607962478LinqAlpha.PDF>
- [6] **607962478LinqAlpha.PDF** · clsa — <s3://ext-linq-rms-clsa/2025/06/607962478LinqAlpha.PDF>
- [7] **607962478LinqAlpha.PDF** · clsa — <s3://ext-linq-rms-clsa/2025/06/607962478LinqAlpha.PDF>
- [8] **Commonwealth Bank of Australia, Q2 2026 Earnings Call, 10-February-2026 6** · external

