The Westpac Banking Corp (ASX: WBC) share price has started the week in the red.
In afternoon trade, the banking giant's shares are down almost 1% to $23.86.
Is the Westpac share price good value?
One leading broker that is likely to see today's weakness as a buying opportunity is Goldman Sachs.
Last week, the broker retained its conviction buy rating with an improved price target of $27.60.
Based on the current Westpac share price, this implies a potential return of almost 16% for investors over the next 12 months before dividends. And including the ~6.2% dividend yield the broker is forecasting in FY 2023, the total potential return increases to over 22%.
Three reasons to buy the bank's shares
There are three key reasons why Goldman believes the Westpac share price is great value at the current level.
These are the net interest margin (NIM) trajectory of Australia's oldest bank, its cost reduction target, and its attractive valuation. The broker explained:
We remain Buy (on CL) rated on WBC given: i) while on the surface, the FY22 result suggested WBC's NIM leverage was underwhelming relative to some peers, we think 2H22 was adversely impacted by late-in-the-half liquidity build, and management's guidance on its FY23 NIM trajectory was better than we had previously anticipated, ii) despite WBC revising its FY24E cost target to A$8.6 bn (from A$8.0 bn), the bank's performance on cost management remains strong in this inflationary environment with a 9% step down in costs expected over the next two years, and iii) the stock is trading at a 22% 12-month forward PER discount to peers (ex-dividend adjusted; historically has traded at a 2% discount), and our revised TP of A$27.60 offers 25% [now ~22%] TSR.
