Over the last three weeks the Westpac Banking Corp (ASX: WBC) share price has lost around 5% of its value.
This has been driven largely by the banking giant's announcement that its cash earnings in the first half of FY 2019 will be reduced by an estimated $260 million due to provisions arising from further work on its customer remediation programs.
Is this a buying opportunity?
Whilst I still have a preference for Australia and New Zealand Banking Group (ASX: ANZ) and National Australia Bank Ltd (ASX: NAB) shares, I think Westpac's shares are a good option for investors with limited exposure to the banking sector.
One broker that agrees with this view is Citi. According to a note out of the investment bank, its analysts have retained their buy rating and $30.00 price target on the bank's shares.
This price target implies potential upside of 15.5% over the next 12 month excluding dividends. If you include the $1.88 per share dividend that Citi expects Westpac to pay this year, this potential return increases to almost 23%.
Its analysts have adjusted their forecasts to account for the additional remediation but have remained positive on the bank due to their belief that it will continue to grow core revenue by around 2% on an underlying basis.
Analysts at Goldman Sachs are a little less bullish on the bank's prospects. A recent note reveals that its analysts have a neutral rating and $28.72 price target on Westpac's shares. They also expect the bank's dividend to be maintained despite the higher remediation costs.
According to the note, Goldman expects Westpac to finish the half with a CET1 ratio above 10.6% and for the board to look beyond the large one-offs and leave its half year dividend at 94 cents per share.
Although Goldman remains neutral, it is worth noting that its price target implies potential upside of 18% including dividends over the next 12 months.
Overall, I think an investment in the company's shares at the current level has the potential to provide outsized returns for investors over the next 12 months, just as long as the housing market downturn doesn't accelerate.
