If you're looking for a reason to buy Westpac Banking Corp (ASX: WBC) shares, then read on.
The team at Goldman Sachs doesn't just have one reason to invest in the banking giant's shares, it has three big reasons to do so.
Three reasons to buy Westpac shares
The first reason to buy Westpac shares is its net interest margin (NIM) management. Goldman explains:
[W]e view WBC's NIM management in the half as a positive relative to peers, in particular having achieved an exit NIM that was flat versus 2Q23 average in contrast with peers who saw continued deterioration,
Another reason is its cost outlook. Although it was disappointed that Westpac has walked away from its cost reduction target, the broker still expects its costs to be largely flat. This is a decent outcome in the current inflationary environment. Goldman adds:
[D]espite WBC walking away from its FY24E cost target of A$8.6 bn, we expect a broadly flat cost trajectory over the next two years, which will see WBC outperform peers in this relatively difficult inflationary environment.
Finally, the broker highlights the discount that Westpac shares trade at as a reason to buy. It concludes:
[T]he stock is trading at a notable discount to peers, versus the historical average discount of 3%.
What is fair value?
According to the note, the broker has a conviction buy rating and $24.67 price target on Westpac's shares. Based on its current share price of $21.17, this implies potential upside of 16.5% for investors over the next 12 months.
In addition, the broker is expecting fully franked dividend yields of approximately 6.2% in FY 2023 and FY 2024.
All in all, this makes Westpac the broker's "preferred exposure to the A&NZ Financials."
