Westpac shares (ASX: WBC) ended the day firmly in the red, 1.07% down as the Aussie bank stocks and the markets generally pulled back to start Q2. Taking a closer look at Westpac reveals some interesting numbers and forecasts.

Riding the wave of a 11.92% increase since the start of the year, Westpac Banking Corp presents an intriguing case for investors examining the stability and growth potential within Australia’s banking sector. As the second-largest of the Big Four Australian banks, Westpac holds a cornerstone position in the country’s financial system. Its primary role encompasses providing financial services to a broad client base, including homeowners, investors, individuals, and businesses.

In comparison to its peers, Westpac has demonstrated a conducive workplace culture, scoring an overall rating of 3.4 out of 5, commendably higher than the ASX banking sector average of 3.13. Such a positive internal environment could translate into greater productivity and customer service quality, factors implicitly essential for sustained growth and shareholder value.

Nevertheless, Westpac’s competitive edge faces subtle pressure, revealed in its lending margin of 1.9%, which trails just behind the ASX major bank average of 1.92%. Margins are critical for profitability in the banking sector, where even fractional differences can significantly impact the bottom line. Westpac’s Return on Equity (ROE) metric, settling at 11.3%, remains under the sector average of 11.74%. ROE is often scrutinized by investors to gauge how effectively a company is using equity to generate profits, and Westpac’s current standing may reflect a need for efficiency improvements or growth initiatives.

Investors and analysts often resort to various evaluative models to ascertain the fair value of a bank’s shares. For Westpac, a dividend discount model (DDM) valuation suggests a value of $24.13, which further adjusts to $23.79 with an expected $1.40 dividend per share. This approach bases the valuation on the present value of predicted dividends, foreseeing the income an investor may receive from holding the stock. Analysts have their own metrics and the current consensus on WBC shares is not positive.


Top Australian Brokers


WBC Analyst Price Targets – Of the 9 analysts to have targets set publicly, there is a consensus ‘hold’ rating set against an average price target of $23.55, almost 9% below the current mark and back close to where Westpac shares started the year. The most bullish of the analysts has a target price of $27.99, with the low rather a long way down at $18.50. Most analysts likely will not be considering the value using franking credits, but back closer to home those do remain an element of consideration.

By some of these measures, while the current share price at $25.83 might appear a little heavy, the valuation dynamics could put many at a crossroads. With the narrative around the big banking stocks being closely followed, these are those that come closest to being ‘priced to perfection’ in the market.

Don’t Buy Just Yet

You will want to see this before you make any decisions.

Before you decide which shares to add to your portfolio you might want to take a look at this special report we recently published.

Our experts picked out The 5 best ASX shares to buy in 2024.

We’re giving away this valuable research for FREE.

Click below to secure your copy