Should you buy Westpac shares before the bank's FY24 first-half result?

Is it time to buy the ASX bank share before its report?

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The ASX bank share Westpac Banking Corp (ASX: WBC) will soon report its FY24 first-half earnings results.

Westpac is scheduled to release its report on Monday, 6 May, when it will tell the market about its operations, profit, and dividend.

So, is now a good time to buy the bank?

Is the Westpac share price a buy?

The Westpac share price is up 12% year to date, compared to a rise of just 0.5% for the S&P/ASX 200 Index (ASX: XJO).

With that capital growth comes a higher price/earnings (P/E) ratio, meaning it's priced at a higher multiple of its earnings.

A valuation takes into account the full 12 months of earnings. Based on broker UBS's numbers, the Westpac share price is valued at 14.5x FY24's estimated earnings.

That profit projection suggests Westpac's earnings per share (EPS) could drop around 8% in FY24, amid a higher cost of living, high interest costs, and strong competition in the banking sector.

The amount of credit losses reported could be a key figure for the FY24 half-year result, depending on how borrowers manage their loans.

UBS suggested that the FY24 first quarter expected credit losses of $189 million were lower than market expectations for the first half of FY24 (being $452 million, with UBS itself expecting credit losses of $480 million).

The broker also noted other positives from the FY24 first quarter, including a reduction in the number of full-time equivalent (FTE) employees and a stable core net interest margin (NIM).

For me, it all comes down to profit generation. If the ASX bank share can make enough profit to justify the higher Westpac share price, then it may prove to be cheaper than it should be.

Westpac is looking to preserve profits rather than trying to win market share with cheap loans, according to reporting by the Australian Financial Review. Westpac's consumer bank chief Jason Yetton has said he wants the "right returns for shareholders".

Verdict on the ASX bank share

UBS thinks Westpac is a sell, with a price target of $23, implying a possible decline of more than 10% from it current price of $25.96.

When the Westpac share price was trading at $27.70 recently, the broker had this to say:

WBC's share price is trading well above long-term historical valuation averages on a P/E basis.

However, we believe the market is not adequately pricing in ongoing market share losses and a structurally higher cost base given prolonged underinvestment in risk, compliance and technology.

My view is that the economic conditions haven't improved enough to justify the Westpac share price going higher than it is. Competition is still strong, and worsening arrears are still a possibility amid high interest rates. Additionally, its forward P/E ratio has increased.

For me, there are other ASX dividend shares I'd rather buy which don't seem overpriced.

Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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