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Investing.com -- Morgan Stanley downgraded Commerzbank (ETR:CBKG) to “equal-weight” from “overweight” in a note dated Tuesday, replacing the German lender with ING (AS:INGA) as a top pick.
The shift followed a sharp rally in Commerzbank’s shares, which have more than doubled this year and now trade at 1.3 times tangible book value.
The analysts said second-quarter results were solid, with net interest income and fees 2% ahead of expectations, and pointed to a favorable German macro outlook.
However, they noted the need for more progress in Commerzbank’s strategic plan before taking a more positive stance.
Morgan Stanley raised its price target on the stock to €36 from €32, rolling forward its valuation to December 2026 and lowering the cost of equity to 11% from 11.5%.
Adjusted earnings per share estimates were lifted by 1.9% for 2025 but cut by 2.6% for 2026 and 2.8% for 2027.
The brokerage projected Commerzbank trading on 12.7x 2025 estimated earnings, 11.1x in 2026 and 9.1x in 2027.
Return on tangible equity is expected at 10.3% in 2025, 11.4% in 2026 and 13% in 2027. Dividend yields are forecast at 3.1% in 2025, 3.6% in 2026 and 4.4% in 2027.
Analysts said upside risks could come from faster loan growth in Germany and European Central Bank rates staying above the 1.5% base case assumption.
They added that downside risks include limited historical success in cost reductions. UniCredit’s 29% stake in Commerzbank was also highlighted as a factor that could affect the share price depending on future decisions regarding the holding.
The downgrade was part of a wider sector review in which Morgan Stanley reiterated a positive stance on European banks.
ING was upgraded to “overweight” and named a top pick alongside Lloyds, Santander and Société Générale.