The Westpac Banking Corp (ASX: WBC) share price didn't have a great day of trade on Wednesday.
The shares of Australia's oldest bank finished the day lower by over 1.5% to $29.88.
Is this a buying opportunity?
I think it is. At this level I think Westpac is an attractive option for both value and income investors that don't already have meaningful exposure to the banks.
I'm not alone in this view, either. A note out of Goldman Sachs after the market closed yesterday reveals that its analysts have labelled Westpac as a buy with a $36.29 price target.
That means potential upside of over 21% for its shares over the next 12 months if it reaches the broker's price target. If you factor in the bank's generous dividend this rises to a total potential return of almost 28%.
According to the note, despite Goldman's Macro team pushing out the start of the cash rate hike cycle, its analysts believe that Westpac can deliver rising net interest margins (NIM) by further expanding deposit spreads.
The broker has based this largely on recent product pricing which suggests a continued decline in high-flow special rate term deposit and online savings account interest rates.
While Australia and New Zealand Banking Group (ASX: ANZ), also rated as a buy by Goldman, and its sector peers are likely to benefit from this as well, the broker believes Westpac is best-positioned to profit as it has the best leverage to further reductions in domestic deposit rates.
Should you invest?
I agree with Goldman that Westpac is a buy and think it would be a great option for investors today.
There are downside risks that shouldn't be neglected such as a housing market crash and the Royal Commission, but ultimately I believe the risk/reward on offer here is compelling. For this reason it remains my first pick in the sector.
