The Westpac Banking Corp (ASX: WBC) share price is marching downwards in afternoon trade today.
At market open, Westpac shares walked out of the gate and peaked at a daily high of $23.03 before retreating. At last check, Westpac shares are trading at $22.68.
After a strong start to the year and even healthier gain over the past month, Westpac is now outpacing most of its ASX banking peers in 2022 so far.
However, not all are rosy on Westpac shares. Let's take a look.
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Why is this top broker neutral on Westpac?
JP Morgan is uncertain on the outlook of Westpac shares amid a wave of headwinds the bank is set to face in 2022.
According to JP Morgan analysts, Westpac's "outlook is highly uncertain, with weak customer franchise metrics and
revenue under pressure driven by compression on mortgage margins."
"Westpac's FY24 cost plan ($8 billion target ex Specialist) is highly ambitious given it requires an approximate 20% reduction from the FY21 cost base, but we expect the market to remain skeptical [sic] on achieving this," the broker said.
Even the bank's strong capital surplus is not enough to differentiate it from other names in the banking basket. That's because all banks are in a similar position, JP Morgan notes.
The broker is forecasting earnings per share (EPS) of 78 cents in 2022 and then 85 cents in 2023. And dividends per share of $1.20 and $1.23 per Westpac share modelled in FY22 and FY23 respectively.
Should this play out, these payouts represent a 5% and 5.2% dividend yield respectively. This is not unattractive in the current yield climate.
However, too many uncertainties exist for the broker to get fully on board with Westpac's case. Especially now that the bank's collective provision coverage is at the bottom end of the peer range in JP Morgan's eyes.
The broker is also folding in a substantial downstep to net interest income for FY22 from $16.714 billion to $16.022 billion. And it sees a decline to net interest margins (NIMs) by 25 basis points in FY22 and then another 4 basis points in FY23.
"In this context, and given our long-term concerns about the sustainability of mortgage margins across the industry (where Westpac has a heavy exposure) we see the risk/reward as unattractive," the broker remarked.
As such, it values Westpac at $23.30 per share whilst retaining its neutral stance on the direction of its share price.
Summary of Westpac shares
In the last 12 months the Westpac share price has fallen 4.8%. Although, it has gained 6.2% this year to date.
During the past month of trading, Westpac shares have spiked over 12%. The bank is leading the broad index so far this year.
