Buy one, sell the other: Goldman's take on these 2 ASX bank shares

There's only one ASX bank share among the big four that has a buy rating from this top broker.

| More on:
Confident male executive dressed in a dark blue suit leans against a doorway with his arms crossed in the corporate office

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

ASX bank shares have had a remarkable run since November, and now it's time to be cautious on the sector, warns top broker Goldman Sachs.

In a note to clients, the broker said bank fundamentals were generally weak and stocks were trading at "close to record expensive" levels.

Goldman said:

… while the deterioration in earnings appears to now be finished, we see very limited upside risk, and therefore, with valuations skewed asymmetrically to the downside, we now think a more negative view on the banks is appropriate …

The broker added:

Australian bank valuations are at extremes, with absolute 12-month forward PERs at the 99th percentile, our DCF valuations are, on average, 175% below current share prices, and the spread between bank fully-franked yields and the 10-year bond yield is currently at its lowest level in nearly 15 years.

Amid stretched valuations, Goldman has a buy rating on only one bank among the big four institutions.

Which bank is a buy?

Goldman has a buy rating on ANZ Group Holdings Ltd (ASX: ANZ) with a 12-month share price target of $28.15.

ANZ shares closed on Friday at $28.25, up 1.15% for the day and up 8.7% in the year to date.

Goldman analysts Andrew Lyons and John Li said:

We are Buy-rated on ANZ given i) we are seeing evidence of ANZ's ability to derive productivity benefits (A$201 mn in 1H24) and management noted there remains a large pipeline available which can be used to offset cost inflation.

Furthermore, ii) the improving profitability of ANZ's Institutional business remains a key driver of our positive investment thesis.

We continue to see upside for Group returns due to accretive mix shifts in the Institutional business towards higher ROE Payments and Cash Management business.

Finally, the stock still trades at a discount to the sector (ex-dividend adjusted).

Why is this ASX 200 bank share a sell?

Goldman has a sell rating on ASX bank share Westpac Banking Corp (ASX: WBC) with a 12-month price target of $24.10.

Westpac shares closed yesterday at $25.98, up just 0.19% for the day and 12.56% higher year to date.

Lyons and Li said they had downgraded Westpac shares due to the following factors:

… i) execution, cost and timing risks relating to its technology simplification, ii) of the major banks, WBC's balance sheet is the most overweight domestic housing, which we expect will be more growth constrained than commercial lending over the medium term, iii) NIM has been supported by a shorter duration replicating portfolio but this will give them less longevity, and d) WBC's 14.2x 12-mo fwd PER is more than one standard deviation expensive vs. its 12.7x historic average. 

Motley Fool contributor Bronwyn Allen has positions in Anz Group. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended Goldman Sachs Group. 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 Scott Phillips.

More on Bank Shares

A woman wearing a yellow shirt smiles as she checks her phone.
Bank Shares

Revealed: Here's how CBA shares could benefit from Indian growth

Australia’s biggest bank is looking to expand its partnership.

Read more »

A man thinks very carefully about his money and investments.
Bank Shares

Why are ASX 200 bank shares being trashed on Tuesday?

Has the September market rotation recommenced?

Read more »

A man looking at his laptop and thinking.
Bank Shares

Why this ASX 200 bank stock could face a hard slog in 2025

Up 44% in a year, should I sell this ASX 200 bank stock today?

Read more »

Bank building with the word bank in gold.
Bank Shares

ANZ share price falls on shock CEO exit

This big four bank is getting a new CEO. Here's what you need to know.

Read more »

A woman standing on the street looks through binoculars.
Bank Shares

Is the outlook compelling for Westpac shares in 2025?

Let’s gaze into the potential future for this huge ASX bank share.

Read more »

A man in a suit looks serious while discussing business dealings with a couple as they sit around a computer at a desk in a bank home lending scenario.
Bank Shares

Will the RBA cut interest rates next week? Here's what Westpac is predicting

Are interest rates heading lower next week? Here's what Westpac expects the RBA to do.

Read more »

A man holds his hand under his chin as he concentrates on his laptop screen and reads about the ANZ share price
Bank Shares

Own ANZ shares? Here's the outlook for 2025

Let's see the numbers.

Read more »

Woman and man calculating a dividend yield.
Bank Shares

Can owners of NAB shares bank on a good 2025 with the outlook?

Is this an exciting time to look at NAB shares?

Read more »