Is the Westpac (ASX:WBC) share price a buy?

The Westpac share price and profit has risen substantially in 2021. Is it a buy?

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The Westpac Banking Corp (ASX: WBC) share price has risen by 30% in 2021 so far. Is the major ASX bank a buy today?

What has been happening recently?

Westpac shares peaked at almost $27 earlier in June, but it has been drifting lower over the last couple of weeks.

Business divestment announcements have been the main news out of the company in the last week.

It announced that it's retaining all of its Westpac New Zealand business and it won't demerge it. Westpac called it a strong business and it's committed to continue delivering for customers. The bank believed that a demerger would not be in the interests of shareholders.

The bank also said that it's selling its motor vehicle dealer finance and novated leasing businesses to Angle Finance.

Westpac will transfer its auto dealer and introducer agreements together with wholesale dealer loans of approximately $1 billion, it will transfer the strategic alliance agreements with vehicle manufacturers and novated lease origination capability and related agreements.

The major bank will retain its existing retail auto loans of around $10 billion originated by the businesses being transferred.

Those loans will run down in the normal course of business over the life of those loans. Westpac will also progressively cease new retail auto loan originations from these three channels with customers still able to see the group's consumer and business lending products to help buy motor vehicles. 

Management said that the sale is subject to the final value of the portfolio transferred and will generate an accounting gain on sale. It is expected to add around 6 basis points to Westpac's common equity tier 1 capital ratio.

The broker Ord Minnett said that the sale was decent, but it doesn't make much of a difference compared to a large entity like Westpac.

Is the Westpac share price a buy?

Ord Minnett currently rates the bank as a hold with a price target of $27.50.

The latest insight into Westpac's financial returns was the FY21 half-year result where it saw statutory net profit grow 189% to $3.4 billion and cash earnings go up 256% to $3.5 billion. Excluding notable items, cash earnings increased 60% to $3.8 billion.

Westpac said it's making good progress on strategic priorities of fixing, simplifying and performing.

The bank's plan to address financial and non-financial risk governance has been approved. The first assurance report has been released. It has also increased its resources in risk and financial crime teams.

It also has a three-year plan to reduce its cost base to $8 billion by FY24.

The bank said that it has a strong balance sheet, higher capital ratio, good margin management and improved credit quality metrics.

One broker that does rate Westpac as a buy is Morgan Stanley. This broker has a price target on Westpac of $29.20. According to Morgan Stanley, the current Westpac share price is valued at 16x FY21's estimated earnings with a forecast FY21 grossed-up dividend yield of 6.5%.

Motley Fool contributor Tristan Harrison 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 has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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