CBA shares has been marching ahead in 2021…
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The Commonwealth Bank of Australia (ASX: CBA) share price has continued its strong rally today, nearing its all-time high.
In 2021 alone, the ASX’s largest company has moved on an upwards trajectory, gaining more than 20%. At the time of writing, CBA shares are up 2.76% to $100.77 for the day.
With no new news out of the company today, we take a brief look at CBA’s price-sensitive announcement yesterday.
What did CBA recently announce?
On Monday morning, CBA advised that it entered into an agreement to sell its Australian general insurance business to the Hollard Group.
While the total value of the deal was not disclosed, CBA stated that $625 million will be paid as an upfront consideration. It also noted that the deferred amount is based on “achieving certain business milestones”.
In addition, both companies established an exclusive 15-year strategic alliance. This sees Hollard offer home and motor insurance policies exclusively to CBA’s retail customers.
Pleasingly, CBA expects to earn an income on the distribution of home and motor insurance products.
Completion of the deal is subject to receiving approval by APRA, which is predicted to occur in mid-2022.
What do the brokers think?
After reporting its third quarter results last month, a number of brokers rated the company with varying price points.
Macquarie raised its price target for CBA shares by 5.5% to $86. JPMorgan appeared the most bullish of the brokers issuing a 12-month price of $91 for CBA shares, a 13% increase. Also following suit, Morgan Stanley (NYSE: MS) initiated a 3.5% lift on CBA shares at $89.50.
However, global investment house, Goldman Sachs provided an update yesterday to CBA’s diversification news, saying:
The transaction is entirely consistent with CBA’s strategy of simplifying the overall group, with a focus back on Australia and New Zealand banking, but still allowing customers to access non-bank product via strategic alliances.
Given CBA’s previous disclosures, we expect this is the last of the major transactions that CBA is likely to undertake to deliver on this simplification.
We do not yet know whether the general insurance earnings will be treated as Discontinued Earnings at CBA’s upcoming FY21 result, due to be released on 11 Aug 2021.
Goldman Sachs rated CBA shares as a sell based on its 12-month price target of $80.26 in mid-May. While it may have raised its outlook by 9% from the original note, this represents a downside of around 25% on today’s price.
CBA share price summary
Over the past 12 months, CBA shares have gone from strength to strength, putting COVID-19 woes in the distance. The company’s share price has accelerated by more than 45% in that time.
On valuation grounds, CBA ranks as the most valued company in Australia, with a market capitalisation of roughly $179.2 billion.
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Motley Fool contributor Aaron Teboneras has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Macquarie Group Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.