Are Westpac shares good value or expensive?

This banking giant's shares have been strong performers this year. Is it too late to invest?

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Westpac Banking Corp (ASX: WBC) shares have been strong performers in 2024.

Since the start of the year, the banking giant's shares have risen an impressive 18%.

Can its shares continue to rise or are they fully valued now? Let's find out what analysts are saying.

Can Westpac shares deliver good returns?

Unfortunately, it seems that almost all brokers believe that the banking giant's shares are fully valued now.

For example, a note out of Citi on Monday reveals that its analysts have retained their sell rating and $24.75 price target on the bank's shares.

Despite Westpac being the broker's favourite big four bank, it is still predicting its shares to fall 8.5% from current levels.

Elsewhere, Macquarie currently has an underperform rating and $26.00 price target and Morgan Stanley has an underweight rating and $24.50 price target.

Why is nobody bullish?

The main reason for the bearish view on Westpac is the valuation of its shares. Together with a few niggling risks and analysts just don't see a compelling risk/reward on offer with the big four bank right now.

Analysts at Goldman Sachs summarised this. They said:

We believe that low industry-wide RWA growth and WBC's strong capital position, which even on a pro-forma basis is >12%, well above its 11.0-11.5% target ratio, underpins a sustainable payout ratio at the top of its 65-75% target range. However, against this, WBC's technology simplification plan comes with a significant degree of execution risk, given historically banks' large-scale transformation programs have struggled to stay on budget, and we are currently operating in a stickier-than-expected inflationary environment. Therefore, trading on a 12-mo forward PER of 14.5x (14.0x ex-dividend adjusted, which is one standard deviation above its 15-year historic average of 12.7x), we stay Neutral.

According to the note, the broker has a neutral rating and $24.10 price target on its shares. Based on the current Westpac share price, this implies potential downside of approximately 11% for investors over the next 12 months.

But that doesn't include dividends. Goldman is forecasting fully franked dividends of $1.65 per share in FY 2024 and then $1.50 per share in FY 2025.

As its shares have already gone ex-dividend for its 90 cents per share interim dividend for FY 2024, this means that investors will receive a $1.50 per share over the next 12 months if buying today. This comprises a 75 cents per share final dividend for FY 2024 and then a 75 cents per share interim dividend for FY 2025. This equates to a 5.5% dividend yield, reducing the total 12-month potential loss from 11% to 5.5%.

Overall, investors should be able to find better returns elsewhere without much effort.

Citigroup is an advertising partner of The Ascent, a Motley Fool company. Motley Fool contributor James Mickleboro has positions in Westpac Banking Corporation. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended Goldman Sachs Group and Macquarie Group. The Motley Fool Australia has positions in and has recommended Macquarie Group. 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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