The Westpac Banking Corp (ASX: WBC) share price is pushing notably higher on Friday.
At the time of writing the banking giant’s shares are up a sizeable 6% to $17.38.
Why is the Westpac share price storming higher?
Today’s gain appears to be news of favourable changes to responsible lending laws and a positive broker note out of Goldman Sachs.
In respect to the latter, this morning the leading broker reiterated its buy rating and trimmed its price target ever so slightly to $19.80.
This price target implies potential upside of 14% over the next 12 months excluding dividends. Including dividends this potential return increases to approximately 20%.
Why is Goldman Sachs bullish on Westpac?
The broker notes that Westpac has reached an agreement with AUSTRAC to settle the civil proceedings commenced in November last year in relation to its contraventions of the Anti-Money Laundering and Counter-Terrorism and Financing Act.
Westpac has agreed to pay a civil penalty of $1.3 billion, the largest in Australian corporate history.
While this penalty is larger than it originally expected ($900 million) and is likely to have a big impact on its earnings in FY 2020, the broker believes the lifting of this dark cloud could be a big positive for the company’s shares.
It commented: “With this significant overhang for the stock now behind it, at a digestible incremental financial cost, we expect the stock to begin to re-rate (currently trades at a 17% PER discount to peers, versus in line historically), and reiterate our Buy.”
I think Goldman Sachs is spot on with its assessment and would suggest investors consider buying Westpac’s shares before they begin to re-rate.
Especially if you’re on the lookout for a source of income in this low interest rate environment.
Based on its last close price, Goldman Sachs estimates that Westpac’s shares offer investors a fully franked 6.5% FY 2021 dividend yield and an 8.2% FY 2022 dividend yield.