The Westpac Banking Corp (ASX: WBC) share price has come under a spot of pressure since announcing $1.3 billion of notable items impacting FY 2021 last week.
The good news for investors is that one leading broker remains positive on the banking giant despite this new.
Who is positive on the Westpac share price?
According to a note out of Morgans, its analysts have retained their add rating and $29.50 price target on the bank's shares.
Based on the current Westpac share price of $25.58, this implies potential upside of 15% for its shares over the next 12 months before dividends.
And with Morgans forecasting a $1.36 per share fully franked dividend in FY 2022, the total potential return stretches to over 20% if you include it.
What did the broker say?
The note reveals that Morgans has reduced its earnings and dividend forecasts for FY 2021 to reflect these notable items.
It explained: "Our FY21F cash EPS is reduced by 21%, however we have not changed our cash EPS forecasts for outer years as we view the notable items to be non-recurring in nature."
"We are uncertain as to whether WBC will decide to exclude these notable items when determining the final dividend payout ratio. We are being conservative on this front and are assuming a final dividend payout ratio of 65% of 2H21 cash earnings (inclusive of notable items). Our final dividend forecast has consequently reduced from 54cps to 30cps," it added.
What about the share buyback?
Positively for shareholders and the Westpac share price, despite these notable items, Morgans still expects the bank to announce a significant share buyback with its full year results next month.
It commented: "Whilst the notable items serve to reduce WBC's CET1 ratio by ~15bps, we have reduced our RWA forecasts […] We continue to expect a $5bn off-market share buyback to be announced on 1 November 2021 when WBC reports its FY21 result.
