The Westpac Banking Corp (ASX: WBC) share price has been one of the worst performing ASX 200 shares over the last few weeks.
Since this time in late October, the banking giant's shares have lost 21% of their value.
Does this make the Westpac share price great value or a value trap?
Given the significant decline by the Westpac share price recently, investors may be wondering if its shares are great value or a value trap.
The team at Morgans has given its opinion on the matter this morning and appear convinced that the bank's shares are not a value trap.
Morgans has reiterated its add rating and $29.50 price target. Based on the current Westpac share price of $20.74, this implies potential upside of 42% for investors over the next 12 months.
What did Morgans say?
Morgans notes that the Westpac share price is trading at a level that would indicate that the market thinks it is a value trap, but it doesn't believe this is the case.
It commented: "WBC shares have been sold off heavily following the FY21 result announcement, such that out of the major banks, WBC is now trading on the lowest FY22F P/NTA multiple, the lowest FY22F P/E multiple and the highest FY22F dividend yield. Such multiples or yields could only be justified if WBC is a value trap, which we think it is not."
The broker explained that it does not feel the challenges facing the bank are anywhere near as severe as the market may think.
Morgans said: "We believe the challenges facing WBC are not severe enough for WBC to be thought of as a value trap. The two key sources of investor consternation in relation to WBC appear to be: net interest margin (NIM) contraction; and risks to achieving the $8bn cost target by FY24F."
"On the NIM front, we believe the challenge facing WBC is not too different to the NIM challenge facing CBA. […] However, what has made the NIM of WBC and CBA look particularly bad is the stable NIM (excluding Markets & Treasury) reported by NAB," it explained.
The good news is that the broker believes these factors of underperformance are addressable.
What about its costs target?
As for its costs, the broker believes the current Westpac share price indicates that the market believes the bank will only be able to cut its costs down from $10.2 billion to $9.5 billion by FY 2024. However, Morgans stated that "we expect WBC to do notably better than this and we consequently believe that the extent of pessimism being reflected in WBC's current share price is overdone."
All in all, the broker believes this has created a buying opportunity for investors, with Westpac remaining its top pick of the majors.
