The Australian banking sector has just had a positive week with three of the big four posting solid gains.
The only exception was Commonwealth Bank of Australia (ASX: CBA), but that was due to its shares going ex-dividend for its final dividend on Wednesday.
Is it too late to buy the banks?
I don't believe it is. Especially after both Australia and New Zealand Banking Group (ASX: ANZ) and National Australia Bank Ltd (ASX: NAB) released positive updates this week despite concerns over the potential impact of the Royal Commission and a cooling housing market.
My pick of the big four remains Westpac Banking Corp (ASX: WBC). With its shares trading at a lowly 12x estimated forward earnings, under 1.7x book value, and offering a trailing fully franked 6.2% dividend, I think they offer a compelling risk/reward for income investors.
I'm not alone in thinking Westpac is in the buy zone. Last month both Macquarie and Goldman Sachs retained their buy ratings on the bank's shares.
Macquarie has an outperform rating and $33.00 price target on its shares largely due to its below-average valuation and generous yield.
Whereas Goldman has a buy rating and lofty price target of $36.60 on the banking giant's shares. This price target implies potential upside of almost 21% over the next 12 months excluding dividends. If you throw in the dividends this potential return stretches to a massive 27%,
While I'm not convinced the bank's shares will climb as high as Goldman's target, I do think that Macquarie's price target is achievable and would be more than fair for Westpac to trade at given its current outlook.
Not far behind Westpac for me is ANZ Bank. I think the low multiples its shares trade on and the generous yield it offers are highly attractive in the current low interest environment.
