The Westpac Banking Corp (ASX: WBC) share price has lagged peers and underperformed benchmarks in 2022. The ASX banking share has posted a 16% loss in the past year.
Shares in the banking major join its rivals in what's been a fairly tumultuous year for the sector.
After starting off with a bang, a mix of tightening monetary policy and the subsequent impact on interest rates has clamped down heavily on ASX banks. The Westpac share price hasn't escaped the squeeze.
For instance, the VanEck Australian Banks ETF (ASX: MVB) – one proxy to examine movements specific to Aussie banks on the chart – is down 3.5% this YTD.
Underperformance amid inflation turbulence
Following United States CPI (consumer price index) and headline inflation data readouts last night, the ASX and its fellow Australia-Pacific exchanges are set to feel the impulse at the open today.
There's no denying that 2022 has been a year. The market narrative has been dominated by that of inflation and central bank tightening.
This includes each of the US Federal Reserve, European Central Bank (ECB), Central Bank of Japan (BOJ), the Bank of England (BOE), and the Reserve Bank of Australia (RBA) committing to raising their policy rates in order to tackle inflation.
For Westpac, it has been a serial underperformer up to this year. And trends have remained in situ from January to date.
Despite this, Westpac shares actually have a fairly robust level of buying support, forming the bedrock for the bank to make a turnaround should enough investors pile in.
In his speech to the Anika Foundation last week, RBA Governor Dr Philip Lowe said the recent lift in inflation had come as a "surprise".
The RBA is now "expecting CPI inflation this year to be around 7.75%" Lowe said – "a very big change and a very large forecast miss".
Can the Westpac share price turn it around?
Curiously, the Westpac share price has caught a bid in the days following, suggesting the market was at least craving some sort of clarity on the inflation number – even if it was high.
Analysts at Goldman Sachs recognise that Westpac has potential to embark on a turnaround, now with the bank's cost targeting initiatives, wider net interest margins (NIMs), and current multiples it's trading at.
"Westpac now offers the most upside of the banks over the next 12 months," the broker said.
"Beyond this, we note the stock is trading at a 20% discount to peers, versus the historic average 2% discount," it added.
Meanwhile, Morgan Stanley predicts the bank to push its FY22 and FY23 dividend to $1.25 and $1.30, respectively.
Both brokers rate Westpac a buy, bringing the list to six out of 15 analysts recommending to buy the Westpac share price. That's up from five in June, according to Refinitiv Eikon data.
The consensus price target from this list is $24.30, suggesting a small amount of upside should the group have it correct.
As for the turnaround story – it remains to be seen what Westpac and its share price will deliver this financial year. It has a mountain to climb, along with the other banking majors, and so it will be an interesting set of numbers to follow throughout the year.
