The Westpac Banking Corp (ASX: WBC) share price could be dirt cheap at current levels.
That's the view of analysts at Goldman Sachs, which this week reiterated their bullish view on Australia's oldest bank.
What did Goldman say about the Westpac share price?
According to the note, Goldman Sachs has retained its conviction buy rating and lifted its price target on the bank's shares to $27.08.
Based on the current Westpac share price of $21.30, this implies potential upside of 27% for investors over the next 12 months.
Why is Goldman bullish?
Goldman has been bullish on the Westpac in recent months due to its cost cutting plans and belief that the bank provides strong leverage to rising rates.
This week, the broker became even more bullish because it feels that the market is being too conservative with sector net interest margins (NIMs) forecasts.
In fact, Goldman expects sector NIMs to reach their highest levels in a decade in FY 2024. This has led to the broker increasing its earnings estimates for Westpac and the rest of the big four banks.
Its analysts explained:
Our product profitability analysis gives us greater conviction around where NIMs should settle as cash rates revert towards 3%, and we now forecast FY24 NIMs to rise to c. 1.9% (+3-5 bp vs. previous forecast), which is in line with where they were in FY13, adjusted for shifts that have occurred to the major banks' product mix since then. We now sit 3-9 bp ahead of consensus of FY24E NIM, which drives FY24E ROTEs of 12%-13% (top-end at 11% CET1 ratio). Therefore, with the sector trading on 1.6x spot P/NTA, we think value exists.
We continue to prefer WBC (Buy on CL) reflecting its: 1) strong leverage to rising rates, 2) cost management, 3) recent market update highlighting that the business is still investing effectively in its franchise, and 4) supportive valuations.
