Westpac Banking Corp (ASX: WBC) shares have been having a tough time in 2023.
Since the start of the year, Australia's oldest bank's shares have lost 11% of their value.
This leaves them trading below $21.00, which isn't too far away from their 52-week low.
Should you buy Westpac shares at this level?
Most brokers are sitting on the fence when it comes to Westpac shares. For example, the likes of Citi, Macquarie, and UBS all have the equivalent of hold ratings at present.
But there are a couple of brokers that see the bank's shares as buys with material upside potential at current levels.
Goldman Sachs is one of the most bullish brokers out there.
In fact, its analysts have named Westpac shares as the broker's top pick in the banking sector with a conviction buy rating and $24.67 price target.
Based on its current share price of $20.70, this implies a potential upside of 19% for investors. Goldman commented:
We are Buy-rated (on CL) and continue to see WBC as our preferred exposure to the A&NZ Financials given: i) we view WBC's NIM management in the half as a positive relative to peers, in particular having achieved an exit NIM that was flat versus 2Q23 average in contrast with peers who saw continued deterioration, ii) despite WBC walking away from its FY24E cost target of A$8.6 bn, we expect a broadly flat cost trajectory over the next two years, which should see WBC outperform peers in this relatively difficult inflationary environment.
Another broker that is positive on Westpac is Morgans. It currently has an add rating and a $24.22 price target on its shares. This implies a 17% upside over the next 12 months.
Morgans explains its bullish view:
We view WBC as having the greatest potential for return on equity improvement amongst the major banks if its business transformation initiatives prove successful. The sources of this improvement include improved loan origination and processing capability, cost reductions (including from divestments and cost-out), rapid leverage to higher rates environment, and reduced regulatory credit risk intensity of non-home loan book. Yield including franking is attractive for income-oriented investors, while the ROE improvement should deliver share price growth.
Don't forget the dividends!
As well as plenty of upside, Goldman Sachs and Morgans are expecting Westpac shares to provide big dividend yields in the near term.
They have pencilled in fully franked dividends per share of $1.40 and $1.49, respectively, for FY 2023, and then $1.40 and $1.52, respectively, for FY 2024.
This equates to dividend yields of at least 6.75% in both years, which stretches the total potential returns well beyond 20%.
