In a Bonnie-and-Clyde-like moment, ASX bank shares have fled the scene this past week, trading down nearly 6%.
The S&P/ASX 200 Banks Index (ASX: XBK), a proxy for the sector, reached an all-time high of 3,420 on 31 July. Along with the broad market, the sector has sold off sharply before settling at its monthly lows.
However, analysts aren't convinced about all stocks in the sector and have made several rating changes this week.
Let's delve into the reasons behind these changes and what they mean for investors.
Broker flips view on ASX bank shares
Analysts at JP Morgan have changed their position on the ASX banking sector in a note to clients today.
The broker upgraded ANZ Group Holdings Ltd (ASX: ANZ) to a neutral rating, previously rating it a sell.
Meanwhile, it cut its rating on Westpac Banking Corp (ASX: WBC) shares to a sell, according to The Australian.
Analyst Andrew Triggs pointed out that negative catalysts, such as exposure to US interest rate cuts and recent investigations into its market conduct, were now priced into ANZ's valuation.
This comes as ANZ hovers at a price-to-earnings ratio (P/E) of 12.15 times on publication.
Despite the optimism, analysts at Morgan Stanley aren't as convinced. According to my colleague Tristan, the broker expressed concerns over ANZ's institutional bank revenues peaking and the execution risks associated with its ANZ Plus digital banking service.
It rates ANZ a sell with a $26.20 price target.
Westpac downgraded
Meanwhile, JP Morgan has downgraded its rating on Westpac to sell. The broker is cautious about the ASX bank share's valuation.
At the time of writing, it is trading at a premium to ANZ at a P/E of 16.2 times.
Triggs noted Westpac was now "rich in negative near-term catalysts" and had "significantly outperformed the other banks this year" but that valuations were now "stretched".
He also said that while Westpac's net interest margin (NIM) outperformance is likely in the second half of 2024, potential Reserve Bank of Australia (RBA) rate cuts could pressure its retail deposit franchise.
Other brokers are also cautious about the ASX bank stock. Goldman Sachs, for example, has a sell rating on Westpac shares with a price target of $24.10, implying further downside.
Citi and UBS echo similar sell ratings, with price targets of $24.75 and $25.00, respectively.
Foolish takeout
The recent changes in ratings for ANZ and Westpac highlight the mixed outlook for these ASX bank shares.
Broker reviews are mixed on both stocks, as is often the case. Still, you should always conduct your own due diligence and never rely on past performance or single price targets as a guarantee of future results.
