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Key points
- The Westpac share price is down 24% from its highs
- Morgans believes this has created a buying opportunity for investors
- Its analysts see 43% upside and a 6% dividend yield in 2022
The Westpac Banking Corp (ASX: WBC) share price is back on form on Friday and is pushing higher in afternoon trade.
At the time of writing, the banking giant's shares are up 2% to $20.58.
Though, that is little consolation for longer term shareholders. The Westpac share price is still down 24% from its 52-week high.
Is the Westpac share price good value?
While the weakness in the Westpac share price is disappointing, one leading broker believes it could be a buying opportunity for investors.
According to a recent note out of Morgans, its analysts have an add rating and $29.50 price target on the bank's shares.
Based on the current Westpac share price, this implies potential upside of 43% for investors over the next 12 months.
But it gets even better! Morgans is forecasting fully franked dividends per share of 123 cents in FY 2022 (and then 162 cents in FY 2023). If you include FY 2022's dividend yield of 6%, the total return on offer stretches to almost 50%.
What did the broker say?
Morgans believes the current Westpac share price makes it the best value major bank.
The broker commented: "We believe WBC offers the most compelling valuation of the major banks. In terms of quality of overall risk profile, we believe WBC is a close second to CBA."
Morgans notes that the share price weakness has been driven partly by doubts over Westpac's ability to cut its cost base to $8 billion by FY 2024 and margin weakness. However, it feels the market is overreacting, which is creating a buying opportunity for investors.
The broker explained : "One way for us to arrive at a valuation – predicated on a cost of equity of 9% pa – which matches WBC's current share price of ~$20.50 would be to assume that WBC only manages to reduce its annual cost base to $9.5bn by FY24F (compared with an underlying cost base of $10.2bn in FY20), experiences NIM contraction of 50bps from 2H21 to 2H24F and conducts no further capital management with all other elements of our forecasts unchanged."
"We expect WBC to do notably better than this and we consequently believe that the extent of pessimism being reflected in WBC's current share price is overdone," it added.
