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Is the Westpac share price a bargain buy?

Credit: Kiwiteen123

The big four banks have been hammered in 2020 amid concerns that they will be greatly impacted by the coronavirus pandemic.

The Westpac Banking Corp (ASX: WBC) share price has been the worst performer in the group. On Tuesday its shares closed the day at $14.92.

This means the Westpac share price has lost half of its value since hitting a 52-week high of $30.05.

Is this a buying opportunity?

While Commonwealth Bank of Australia (ASX: CBA) continues to be my top pick in the sector due to the overall quality of its business, I do think Westpac’s shares are very attractively priced at the current level.

Although its earnings will take a hit this year from the pandemic, I expect a rebound in FY 2021 and then for things to normalise again in FY 2022.

This could make Westpac a good option for patient income investors that are not in immediate need of dividends.

Although National Australia Bank Ltd (ASX: NAB) is paying an interim dividend, albeit a small one, I’m not overly convinced that Westpac will follow its lead. Especially after it hinted that it will not be raising capital in the near future.

But I expect the dividend payments to return to relative normal in FY 2021. As do analysts at Goldman Sachs.

This morning the broker retained its neutral rating and lifted its price target on the bank’s shares to $17.63. Although this is only a neutral rating, it is worth noting that its price target implies potential upside of 18.2% over the next 12 months excluding dividends.

Goldman Sachs doesn’t expect Westpac to pay an interim dividend, but has pencilled in a 45 cents final dividend. After which, it expects a 101 cents per share dividend in FY 2021 and 133 cents per share dividend in FY 2022.

Based on its current share price, this would mean Westpac offers a fully franked 6.8% FY 2021 dividend yield and 8.9% FY 2022 dividend yield.

This is on the assumption that Westpac’s cash earnings per share bottom at 85 cents this year, before rebounding to 134 cents and then 176 cents in the two years that follow.

Foolish takeaway.

Overall, I think the potential capital returns on offer over the coming years and these future dividends make Westpac well worth considering at the current level.

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Motley Fool contributor James Mickleboro owns shares of Westpac Banking. 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.

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