Is the Westpac Banking Corp (ASX: WBC) share price now the cheapest option out of the banks on the ASX?
Westpac is one of the biggest banks in the country, alongside National Australia Bank Ltd (ASX: NAB), Australia and New Zealand Banking Group Ltd (ASX: ANZ) and Commonwealth Bank of Australia (ASX: CBA).
Other banks on the ASX include Bank of Queensland Limited (ASX: BOQ) and Bendigo and Adelaide Bank Ltd (ASX: BEN). And some ASX shares like Macquarie Group Ltd (ASX: MQG) and Suncorp Group Ltd (ASX: SUN) have banking operations, but it isn't the biggest part of their business so it's hard to compare apples with apples.
Is Westpac the cheapest ASX bank share?
There are a few different ways to compare banks. One way is to compare the 'price to book' ratio, or the ratio of the market capitalisation against the balance sheet.
Another way to compare the banks is by looking at the multiple of earnings that the share price is trading at. This is called the price/earnings (p/e) ratio.
Let's start with the FY22 estimate for Westpac.
According to UBS, the Westpac share price is valued at 15x FY22's estimated earnings.
How does that compare to other big banks?
UBS thinks that the CBA share price is valued at 20x FY22's estimated earnings.
The ANZ share price is valued at 13x FY22's estimated earnings.
The NAB share price is priced at 15x FY22's estimated earnings.
So, based on the estimated earnings for the current financial year, it's ANZ that has the lowest p/e ratio.
Turning to the smaller banks, the BOQ share price is valued at 9x FY22's estimated earnings according to Morgans.
Broker Citi believes that the Bendigo Bank share price is priced at 14x FY22's estimated earnings.
On the above numbers, Westpac wouldn't count as the cheapest on earnings multiple terms.
What is Westpac's valuation for FY23?
UBS expects Westpac to grow its earnings per share (EPS) in FY23. If it does achieve the projected profit, then the Westpac share price is valued at 13x FY23's estimated earnings.
However, UBS is also expecting ANZ to grow earnings in FY23 as well, putting it at just 12x FY23's estimated earnings.
So, even looking forward, Westpac still isn't expected to be the cheapest big four bank in the next financial year.
Outlook
Westpac CEO Peter King commented on the recent FY22 half-year result:
We are tracking well on our strategic priorities. From a 'perform' perspective, we maintained our return on equity over the prior half, as our cost reset program helped to offset a decline in revenue and an increase in impairments…
We're investing in improving the customer experience, focusing on making customer service easier and faster, accelerating digital, and building on our banker expertise and capability.
