The Westpac Banking Corp (ASX: WBC) share price is under a spot of pressure on Thursday morning.
In morning trade, the banking giant's shares are down 0.5% to $25.15.
Why is the Westpac share price edging lower?
The weakness in the Westpac share price today appears to have been driven by a broker note out of Bell Potter this morning.
According to the note, the broker has downgraded Westpac shares to a hold rating with an improved price target of $26.50.
Based on the latest Westpac share price, this price target implies upside of 5.3% excluding dividends.
Including the fully franked 4.4% dividend yield the broker is forecasting, the total potential return stretches to almost 10%.
What did the broker say?
Bell Potter increased its price target on the Westpac share price to reflect upgrades to the broker's earnings estimates. These estimates were increased largely due to a large jump in impairment benefits.
The broker explained: "The revisions are due to slightly higher NIE (although offset by a 3bp fall in NIM to around 2.06% between 1H21 and 2H21), higher other income (+22%/+28% over the respective years mainly from higher fees), higher operating expenses (the main one being in FY21 at +9% to $11.9bn largely due to one-off costs, and tapering down to 4% in the coming years), a large jump in impairment benefits to $255m as the recovery continues (and then down to charges again as the recovery ceases) and resulting income tax expense using 30% income tax rate."
However, despite this and the increase to its earnings estimates, the potential return on offer isn't enough for Bell Potter to recommend Westpac shares as a buy anymore.
"While the valuation is increased by $4.00 to $26.50 (previously $22.50), we have opted for a Hold rating at present (being a TSR of only 8.2%). WBC's outlook will be reassessed following finalisation of CET1 capital rules," it concluded.
