Is the Westpac share price the cheapest in the bank sector today?

Is Westpac the cheapest big four bank around?

| More on:
A man thinks very carefully about his money and investments.

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Key points

  • Westpac shares may not be the cheapest in the banking sector
  • ANZ is the one with the lowest earnings multiple
  • However, Westpac is expected to grow its earnings

Is the Westpac Banking Corp (ASX: WBC) share price now the cheapest option out of the banks on the ASX?

Westpac is one of the biggest banks in the country, alongside National Australia Bank Ltd (ASX: NAB), Australia and New Zealand Banking Group Ltd (ASX: ANZ) and Commonwealth Bank of Australia (ASX: CBA).

Other banks on the ASX include Bank of Queensland Limited (ASX: BOQ) and Bendigo and Adelaide Bank Ltd (ASX: BEN). And some ASX shares like Macquarie Group Ltd (ASX: MQG) and Suncorp Group Ltd (ASX: SUN) have banking operations, but it isn't the biggest part of their business so it's hard to compare apples with apples.

Is Westpac the cheapest ASX bank share?

There are a few different ways to compare banks. One way is to compare the 'price to book' ratio, or the ratio of the market capitalisation against the balance sheet.

Another way to compare the banks is by looking at the multiple of earnings that the share price is trading at. This is called the price/earnings (p/e) ratio.

Let's start with the FY22 estimate for Westpac.

According to UBS, the Westpac share price is valued at 15x FY22's estimated earnings.

How does that compare to other big banks?

UBS thinks that the CBA share price is valued at 20x FY22's estimated earnings.

The ANZ share price is valued at 13x FY22's estimated earnings.

The NAB share price is priced at 15x FY22's estimated earnings.

So, based on the estimated earnings for the current financial year, it's ANZ that has the lowest p/e ratio.

Turning to the smaller banks, the BOQ share price is valued at 9x FY22's estimated earnings according to Morgans.

Broker Citi believes that the Bendigo Bank share price is priced at 14x FY22's estimated earnings.

On the above numbers, Westpac wouldn't count as the cheapest on earnings multiple terms.

What is Westpac's valuation for FY23?

UBS expects Westpac to grow its earnings per share (EPS) in FY23. If it does achieve the projected profit, then the Westpac share price is valued at 13x FY23's estimated earnings.

However, UBS is also expecting ANZ to grow earnings in FY23 as well, putting it at just 12x FY23's estimated earnings.

So, even looking forward, Westpac still isn't expected to be the cheapest big four bank in the next financial year.

Outlook

Westpac CEO Peter King commented on the recent FY22 half-year result:

We are tracking well on our strategic priorities. From a 'perform' perspective, we maintained our return on equity over the prior half, as our cost reset program helped to offset a decline in revenue and an increase in impairments…

We're investing in improving the customer experience, focusing on making customer service easier and faster, accelerating digital, and building on our banker expertise and capability.

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 recommended Macquarie Group Limited and Westpac Banking Corporation. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on Bank Shares

A young woman sits with her hand to her chin staring off to the side thinking about her investments.
Resources Shares

Should I switch my ASX 200 banking stocks for ASX 200 miners before earnings season?

The ASX 200 Index is dominated by Australia's bank and materials/mining sectors, which together account for around half of the…

Read more »

A man sits in contemplation on his sofa looking at his phone as though he has just heard some serious or interesting news.
Bank Shares

Here's when Westpac says the RBA will now cut interest rates

The RBA surprised everyone by keeping rates on hold last week. So, when will the next cut happen?

Read more »

Hand holding Australian dollar (AUD) bills, symbolising ex dividend day. Passive income.
Bank Shares

This is the ASX bank stock with the largest dividend yield right now

Looking to ASX bank stocks for dividend income right now?

Read more »

A man sits in deep thought with a pen held to his lips as he ponders his computer screen with a laptop open next to him on his desk in a home office environment.
Bank Shares

ASX banking sector: Is it time to consider a regional bank?

The big 4 banks are widely considered to be overvalued.

Read more »

A person leans over to whisper a secret to a colleague during a meeting.
Bank Shares

Here are the latest growth forecasts for the CBA share price

Can the bank continue rising? Here are some expert views.

Read more »

A businessman presents a company annual report in front of a group seated at a table
Bank Shares

Earnings season predictions: Macquarie weighs in on the big 4 banks

What are the broker's predictions?

Read more »

Contented looking man leans back in his chair at his desk and smiles.
Bank Shares

Major CBA investor reveals why he's all in

This investor described one major reason driving his investment in CBA shares.

Read more »

Young investor sits at desk looking happy after discovering Westpac's dividend reinvestment plan
Bank Shares

Invested $10,000 in Westpac shares 2 years ago? Guess how much you've already banked!

Atop their regular dividend payments, Westpac shares have enjoyed a strong two-year run.

Read more »