The Westpac Banking Corp (ASX: WBC) share price has come under significant pressure in November
Since releasing its full year results on the first of the month, the banking giant's shares have shed almost 12% of their value.
Broker lifts target on Westpac share price
Despite the bank's full year result and its net interest margin outlook falling short of the market's expectations, one leading broker remains positive on the Westpac share price.
In fact, at a time when many brokers were downgrading Westpac's shares or their price targets, the team at Morgans bumped its price target higher.
According to the note, the broker has retained its add rating and lifted its price target on the company's shares by 3.4% to $30.50.
Based on the latest Westpac share price, this implies potential upside of 34% for investors over the next 12 months.
And if you include the $1.23 per share fully franked dividend that Morgans is forecasting in FY 2022, the total potential return stretches to approximately 40%.
What did the broker say?
Morgans was pleased with Westpac's performance and while it was disappointed with its margin outlook, it is looking beyond this and focusing more on its valuation, cost cutting plans, and future share buybacks.
It commented: "Westpac Banking Corp has posted FY21 cash earnings which are 2.2% better than our expectation. The beat is largely the result of a larger credit loss provision release than we expected, more than offsetting a very soft net interest margin outcome. A $3.5bn off-market share buyback has been announced. We expect another $3.5bn off-market share buyback in FY23F."
"We find the management of the margin-volume tradeoff in Australian home lending in FY21 to be disappointing and we hope for better management of this tradeoff going forward. Having said this, our view has been that the stock was not being priced for perfection and was offering considerable value. While the NIM has now re-based notably lower, we continue to see considerable value in the stock particularly due to our expectation of significant cost out by FY24F," it added.
Morgans concluded: "Although we have downgraded our cash EPS forecasts, our target price has increased with the introduction of FY24 forecasts, by which year we are forecasting WBC's annual cost base to reduce to $8.25bn (compared with $10.2bn in FY20) and the return on tangible equity (ROTE) to rise to 14.8%."
All in all, the broker appears to believe this could make the Westpac share price a bargain buy today.
