'Westpac share price undervalued', says analyst

Westpac share price has risen 25% in two weeks after good reviews from respected analysts. Is it a 'buy given money laundering charges?

| More on:

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

The Westpac Banking Corp (ASX: WBC) share price has risen by over 25% in the two weeks since Monday, 22 May. This has been the share's longest consecutive rise in value since the market low point on 23 March. In total, the Westpac share price has risen by 33% from that point to last Friday.

With the ASX expected to open strongly after the drop in US unemployment figures, I believe the Westpac share price will continue to improve its year to date performance.  

Small grey plastic model of a bank building on top of a piece of paper with a performance chart showing red and blue columns

Image source: Getty Images

Why did the Westpac share price rise?

All four of the big banks have seen similar rises. Australia and New Zealand Banking Group Limited (ASX: ANZ) has led the charge with a share price rise of 29.8% over the same period. Positive news in relation to the reopening of the economy has helped this rise. However, respected UBS analyst Jonathan Mott also had an impact with a very positive outlook for banks in the near term. 

Noting how bank shares had underperformed, on Friday Mr Mott doubled down on his optimism placing 'buy' ratings on both Westpac and NAB. Over the past month, Morgan's analyst Azib Khan was also very bullish on the prospects for the Westpac share price. As was Nathan Zaia who, on the Nabtrade website, valued Westpac at $25 per share in early May.

This is a 33% premium to Friday's closing price of $18.79 and would take it past its position on 1 January this year. 

Dark clouds on the horizon

Alan Kohler reported Monday that deferred loans totalled $224 billion or 90% of the equity capital of the four major banks. Current estimates calculate loan impairments for Westpac rising to 0.5% for the next two years. Up from charges as low as 0.1% of loans over the last three years.

Westpac is of course also embroiled in the money laundering scandal. The company released a very unflattering statement to the ASX on 4 June revealing the outcomes of its internal review. Westpac CEO, Mr Peter King said "While the compliance failures were serious, the problems were faults of omission. There was no evidence of intentional wrongdoing,".

The financial crimes regulator, AUSTRAC, lodged a reply document in court on Friday dismissing Westpac's defence in May.

Foolish takeaway

Westpac has changed its CEO and Chairman since the money laundering scandal broke last year. The share price has risen by 25% in the past two weeks and I believe it will see an increase in line with the broader market. If you purchased Westpac shares at Friday's close, you would lock in a price that has a trailing twelve-month dividend yield of 9.26%, although the decision on the dividend payment has been deferred. 

Westpac definitely has some rough road ahead of it however I believe it to be a very sound company with the new management in place. If you are willing to ride through these rough patches, then I feel Friday's close is a good entry point for an investment over the medium to long term. 

Motley Fool contributor Daryl Mather has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. 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 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

Here's why this top broker is tipping 27% upside for ANZ shares

The Silicon Valley Bank collapse has weighed heavily on ANZ's shares and could have created a buying opportunity.

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

Is the Westpac share price a buy below $22?

Westpac’s net interest margins could benefit from any further rate hikes by the RBA.

Read more »

Person with thumbs down and a red sad face poster covering the face.
Bank Shares

Why did the Bank of Queensland share price just hit a multi-year low?

Bank of Queensland shares just went backwards by nearly two years.

Read more »

A man sits uncomfortably at his laptop computer in an outdoor location at a table with trees in the background as he clutches the back of his neck with a wincing look on his face.
Bank Shares

ASX 200 bank shares punished again on US bank fallout

Investors in ASX 200 bank shares are jittery in the wake of SVB’s financial implosion last week.

Read more »

Confident male executive dressed in a dark blue suit leans against a doorway with his arms crossed in the corporate office
Bank Shares

ASX 200 bank shares: Are they better prepared than Silicon Valley Bank?

How ready are our banks for a real life stress test?

Read more »

three reasons to buy asx shares represented by man in red jumper holding up three fingers
Bank Shares

3 reasons the 8% NAB dividend yield looks safe to me

The bank could keep paying a very good dividend.

Read more »

a small girl empties a piggy bank of coins onto a table while her mother looks on in the background.
Bank Shares

Here's how much I'd need to invest in Westpac shares to generate a $150 monthly income

Here's how much income you can get from Westpac shares right now.

Read more »

a woman holds her hands to her temples as she sits in front of a computer screen with a concerned look on her face.
Bank Shares

Why are ASX 200 bank shares like CBA being annihilated today?

It has not been a great day to be invested in the banking sector.

Read more »