What to expect from Westpac (ASX:WBC) during earnings season

Here’s what to expect from Westpac’s first quarter update…

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All eyes will be on the Westpac Banking Corp (ASX: WBC) share price next month when it releases its first quarter update.

Ahead of the release, let’s take a look at what the market is expecting from the banking giant.

What is expected from Westpac in the first quarter?

According to a note out of Bell Potter, its analysts are not expecting an overly strong result from Australia’s largest bank next month.

Its analysts are forecasting cash earnings of $1.82 billion, down 7.6% from the $1.97 billion recorded in the prior corresponding period.

Bell Potter commented: “Cash earnings in 1Q22 should be around $1.82bn mainly due to lower operating expenses. We believe mortgages should continue to grow at system (deposits will instead grow at greater than system – a plus in a way) but NIM will be even lower. As NIM is already 180bp excluding T&M for the month of September 2021 or around 10bp or 190bp after inclusion, we estimate a further loss of 4bp to 186bp in 1H22 mainly due to loan repricing (with the bulk taking place in 1Q22).”

The broker also gave its opinion on Westpac’s bold cost reduction target. Its analysts remain sceptical on the bank’s chances of cutting its cost base down to $8 billion in the coming years.

Bell Potter said: “We still think $8.0bn in cost target by FY24 will be difficult to achieve and have allowed instead for a figure that is closer to $10.0bn.”

“The revised operating expense savings are as follows: FY22 +1%; FY23 +4%, FY24 +10%; and FY25 +9%. While these will lead to higher EPS increases of up to 9% and ROE increase of nearly 1%, we still have to allow for the risk that WBC would not achieve its cost target by FY24,” it added.

Is the Westpac share price in the buy zone?

Despite the recent weakness in the Westpac share price, Bell Potter doesn’t see enough value to recommend it as a buy.

This morning the broker retained its hold rating with a $23.00 price target.

Should you invest $1,000 in Westpac right now?

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Motley Fool contributor James Mickleboro owns Westpac Banking Corporation. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has recommended Westpac Banking Corporation. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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