Shares in banking giant Westpac Banking Corporation (ASX: WBC) have fallen off the cliff in the last week of trading, wiping 14% in gains in a number of days.
Westpac shares fell sharply following the release of its full-year results which came in behind the consensus of analyst expectations on a few fronts.
Now, the experts have weighed in with their analyses, offering investors their insights into the outlook for the Westpac share price.
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What are analysts saying about Westpac shares?
The team at investment banking giant Morgan Stanley was less than impressed with Westpac's performance for the year.
In fact, it was far worse than the broker was expecting. Morgan Stanley didn't factor in challenges Westpac may face in addressing what it called "legacy issues" of weak franchise growth, poor integration of St George Bank, and sloppy capital management.
The broker reckons the visibility is poor on how Westpac intends to achieve its $8 billion cost target and actually increased its FY22 expenses modelling for the bank by 5%.
It subsequently downgraded its rating from overweight to equal weight and trimmed its price target by 14% to $24.80.
Fellow broker Citi has also chimed in, claiming that Westpac faces "execution risks" on its cost targets based on its cost base for FY21.
Citi reckons that "while the pathway implies a sharp run-off in costs", the higher cost base from FY21 is a "higher than expected starting point [that] raises execution risk".
It also notes the bank provides no specific guidance on how it intends to achieve its $8 billion cost base, a worrying sign for the broker.
From its analysis, Citi reckons that the timing of the decline in cost base will "depend on incremental productivity; run-off of fixed costs and removal of specialist businesses".
What else is being said?
Meanwhile, Macquarie Group Ltd (ASX: MQG) saw the downgrades coming all along after the bank's results. It expected "significant consensus earnings downgrades on the back of [the] result".
It, too, was disappointed with Westpac's higher-than-expected expenses in 2H FY21 and acknowledged "the market will be more cautious on the expenses trajectory following [the] result".
Macquarie also alludes to ANZ's challenges in reducing its expense base, which Westpac also isn't immune to.
Analysts at the Aussie broker stated that Westpac's share price gains may have also come at the expense of its net interest margin.
As such, its forecasted earnings per share (EPS) of $1.63 – which sits 9% below the consensus number – "no longer looks overly conservative", according to the broker.
Aside from this, as The Motley Fool reported earlier, Goldman Sachs gave its price target and recommendation on Westpac shares a haircut as well.
Westpac share price snapshot
Despite its most recent nosedive, the Westpac share price has climbed 19% this year to date and almost 30% in the last 12 months.
That's still a marginal step ahead of the benchmark S&P/ASX 200 Index (ASX: XJO)'s climb of around 25% in that time.
