In morning trade the Westpac Banking Corp (ASX: WBC) share price has followed the market lower and is down 0.2% to $30.64.
This brings its 12-month share price decline to approximately 10.5%, compared to a 3% gain by the benchmark S&P/ASX 200.
Does this make Westpac shares good value today?
While there are a few risk events that should not be ignored, I still feel that an investment in Westpac's shares provides a compelling risk/reward.
Those risk events are a potential housing market crash and the Royal Commission into the banking sector.
I'm optimistic that there won't be a housing market crash any time soon and data from the bank itself appears to back this up. Westpac's latest economic research, courtesy of the ABC, indicates that mortgage arrears data nationally points to benign conditions which are unlikely to cause a rush of distressed sales.
In regard to the Royal Commission, whilst I expect this could weigh on its shares for a bit, I feel confident that it won't uncover any skeletons in Westpac's closet.
Which allows me to focus on the positives. One of which is its share price which I think is trading at a very attractive level.
At just 12.5x estimated forward earnings and 1.7x book value, Westpac's shares are trading at a below average level at present. Over the last decade Westpac has traded at an average of just over 13x earnings and 1.9x book value.
Not only is this lower than its average, it is also a discount to banking rival Commonwealth Bank of Australia (ASX: CBA). The shares of Australia's largest bank are currently trading at 13.5x earnings and 2.1x book value.
Finally, as well as being good value, Westpac's shares are also a great source of income for investors. At the current price, the bank's shares provide a trailing fully franked 6.1% dividend.
Overall, I think this means its shares have the potential to provide a market-beating total return over the next 12 months.
