On Monday, the Westpac Banking Corp (ASX: WBC) share price opened the week with a day in the red.
The banking giant's shares ended the session 1% lower at $22.43.
This followed the release of a third quarter update on its asset quality, capital position, and funding.
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Are Westpac shares in the buy following the update?
While the market may not have responded too positively to the update, one leading broker was pleased with it.
According to a note out of Goldman Sachs, its analysts have responded by reiterating their conviction buy rating and lifting their price target slightly to $26.55.
Based on the current Westpac share price of $22.43, this suggests potential upside of 18% for investors over the next 12 months.
And if you include Goldman's forecast for a fully franked dividend of $1.23 per share in FY 2022, this will mean a yield of 5.5% and a total potential return of over 23%.
What did the broker say?
Goldman Sachs has been connecting the dots from Westpac's update and feels that it points to the bank's earnings tracking ahead of expectations.
It commented:
While no earnings update was provided, the CET1 ratio, RWA and capital deduction disclosures did imply that the quarterly cash earnings performance may have been run-rating slightly better than what was implied by our previous 2H22E forecasts.
In light of this, the broker continues to see Westpac shares as the top option in the banking sector right now.
The broker concluded:
We continue to see WBC as our preferred exposure to the A&NZ Financials reflecting: i) its strong leverage to rising rates, ii) while we think its A$8 bn FY24 cost target will now be unachievable, we still forecast a 7% reduction in underlying expenses, iii) its recent market update highlighted that the business is still investing effectively in its franchise, and iv) our 12-mo TP implies a 23% TSR, and we note the stock is trading at a 20% discount to peers, versus the historic average discount of 2%.
