As we roll on into the new year Australian financials have reclaimed some of the losses incurred in earlier months, as investors regain faith in the sector.
Two of the Aussie banking heavyweights have fallen onto the radar of investment bank Citi in a recent note out to clients.
In the update, Citi compared Commonwealth Bank of Australia Ltd (ASX: CBA)'s buyback program to that of Westpac Banking Corp (ASX: WBC)'s off market buyback program that was announced in recent times.
Aside from that, in a list of analysts provided by Bloomberg Intelligence, sentiment between the two banks appears to be mixed, with Westpac coming out on top in many of the brokers' individual assessments.
So how does Westpac stack up against the CBA share price? Let's take a look.
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How are brokers comparing CBA and Westpac shares?
The team at Citi reckon that whilst Westpac looks to have improved the offer in its off market buyback program, it is still most likely less valuable than CBA's.
Part of the reason for this is the complexities that off market buybacks create and have originated for Westpac with respect to tax and payment structuring.
Last week, Westpac went back to the drawing boards with its buyback offer and subsequently amended the discount and extended the tender period for its proposal.
Citi says this has resulted in a modest improvement in post-tax returns for investors and the bank, but it is still a far cry from CBA's 13% return.
The broker noes that with "less tax benefits on offer, we expect Westpac will likely receive significantly less demand than CBA, but has pledged to redirect any shortfall into an on-market buy-back".
Yet, Citi feels the equation is far more balanced now that Westpac has committed to an on-market buyback of its shares should it miss the $3.5 billion off-market threshold.
Despite the cautious tone, Citi remains bullish on Westpac and remains adamant that it is the cheapest out of all the Australian banking majors right now.
The firm rates Westpac a buy and values the bank at $27.50 per share. Meanwhile, the team at Morgans, Macquarie, Goldman Sachs, JP Morgan, Credit Suisse and Morgan Stanley each have the CBA share price as a sell right now.
JP Morgan specifically notes CBA's "very expensive valuation" right now. Even though it forecasts revenue at the top end of the competitor group in FY23/24, it sees pre-provision profit growth being compressed relative to peers.
The broker says that "further capital management is likely in FY23, supported by its residual franking balance; however, the surplus capital position is smaller than peers on a market-cap adjusted basis".
It is given these factors that JP Morgan sees CBA underperforming the other majors. It rates the bank a sell with a $90 price target.
What's the sentiment?
Comparing the two stocks with respect to analyst sentiment, the consensus price target on CBA is $92.73 and 69% of the analysts covering the company advocate it as a sell.
Trading at $102.24 on last check, this suggests CBA has almost $10 of downside potential baked into the consensus valuation.
Meanwhile, Westpac has a consensus valuation of $25.27 and just 25% of analysts recommend it as a sell. With the bank trading at $21.54 on last check, analysts submit the Westpac share price is currently undervalued given this upside target.
Despite this, looking at the data a little deeper reveals some interesting results. The spread in analyst price targets is just over 53% for both companies, whereas the number of analysts advocating buy/sell for each name has remained relatively constant over the last 12 months.
