Is the outlook compelling for Westpac shares in 2025?

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

| More on:
A woman standing on the street looks through binoculars.

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

If you had to guess which ASX shares have produced returns stronger than 40% in 2024, you'd probably choose some leading tech shares and other growth shares.

Westpac Banking Corp (ASX: WBC) shares have also delivered a great return this year – up 43%.

Created with Highcharts 11.4.3Westpac Banking Corporation PriceZoom1M3M6MYTD1Y5Y10YALL31 Dec 20236 Dec 2024Zoom ▾Jan '24Mar '24May '24Jul '24Sep '24Nov '24Jan '24Jan '24Apr '24Apr '24Jul '24Jul '24Oct '24Oct '24www.fool.com.au

It's intriguing to me that the ASX bank share has done so well in 2024, considering its FY24 results, which said the net profit after tax (NPAT) fell 3% to $7 billion due to competition on mortgage pricing and higher costs from inflation.

The strong Westpac share returns are great for shareholders, but that's the past. What could happen over the upcoming year?

Let's have a look at what some experts think could happen with the ASX bank share.

Views on the ASX bank share

Let's start with some views from Darren Thompson, head of asset management at Equity Trustees Asset Management. He said:

The outlook for both earnings (EPS) and dividends (DPS) for the domestic market is heavily weighted to the performance of banks and resources.

Bank earnings are anticipated to be broadly flat due to a combination of modest credit growth, ongoing competition restricting net interest margins, ongoing cost pressures and already cyclically low bad debt provisions.

I think those are reasonable assumptions to make. Ultimately, he's suggesting banks like Westpac may see generally flat earnings. Typically, higher profit is required to raise a valuation, but we've seen Westpac shares climb 43% despite a 3% profit decline in 2024.

Now, let's look at what the broker UBS thinks of the ASX bank share.

UBS believes there's scope for further capital management, either through share buybacks or special dividends, because the franking balance is approximately $3.5 billion. The broker is suggesting a share buyback of $1.7 billion in FY25 and $1.5 billion in FY26.

The broker also pointed out that Westpac's underlying net interest margin (NIM) trends "continue to look encouraging", though cost growth is a headwind. Competitive pressures in home lending are "more than offset by higher earnings on capital and deposits."   

UBS has a neutral rating on Westpac shares and a price target of $33. This implies little movement over the next year.

Earnings forecast for Westpac shares

UBS is currently predicting that in the 2025 financial year, Westpac could generate $22 billion of revenue, $10 billion of pre-tax profit and $7 billion of net profit. This is very similar to what the ASX bank share generated in FY24.

On the broker's numbers, the Westpac share price is currently trading at approximately 17x FY25's estimated earnings. UBS also said it's trading at more than 16x its two-year forward forecast earnings, compared to the 15-year historical average of 12.3x.

In other words, it's valued noticeably higher than it has been in the last decade and a half.

Should you invest $1,000 in Kogan.com Limited right now?

Before you buy Kogan.com Limited shares, consider this:

Motley Fool investing expert Scott Phillips just revealed what he believes are the 5 best stocks for investors to buy right now... and Kogan.com Limited wasn't one of them.

The online investing service he’s run for over a decade, Motley Fool Share Advisor, has provided thousands of paying members with stock picks that have doubled, tripled or even more.*

And right now, Scott thinks there are 5 stocks that may be better buys...

See The 5 Stocks *Returns as of 6 March 2025

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 Scott Phillips.

More on Bank Shares

A man in a suit smiles at the yellow piggy bank he holds in his hand.
Bank Shares

$20,000 invested in NAB shares five years ago is now worth…

Was it a smart idea to buy this banking giant's shares at the height of the pandemic?

Read more »

Business people discussing project on digital tablet.
Bank Shares

How did the CBA share price hold up during the March market turmoil?

Did you catch what happened with the CBA share price in March?

Read more »

Middle age caucasian man smiling confident drinking coffee at home.
Broker Notes

Should I buy or sell Westpac shares in April?

A leading broker has given its verdict on Australia's oldest bank. Here's what it is saying.

Read more »

Sell buy and hold on a digital screen with a man pointing at the sell square.
Bank Shares

Should I sell my NAB shares today?

A leading expert has downgraded NAB shares amid potentially building headwinds.

Read more »

Bank building with the word bank in gold.
Bank Shares

Here's the earnings forecast out to 2029 for CBA shares

Will the bank grow earnings in the next few years?

Read more »

Animation of a man measuring a percentage sign, symbolising rising interest rates.
Bank Shares

Here's what Westpac says the RBA will do with interest rates next week

The RBA is meeting on April Fool's Day. Will it cut rates? Let's find out.

Read more »

Value spelt out in orange on wooden blocks on top of each other.
Bank Shares

Which big 4 ASX bank share offers the best value right now?

Is there a clear winner when it comes to the big ASX bank stocks?

Read more »

Bank building with the word bank on it.
Bank Shares

Is this the secret sauce that's driving CBA shares' success?

Could this be the reason why CBA has been so successful?

Read more »