Most investors view Telstra Group Ltd (ASX: TLS) and Westpac Banking Corp (ASX: WBC) shares as strong ASX blue-chip shares.
Telstra is Australia's biggest telecommunications business, while Westpac is one of the biggest ASX bank shares.
Both businesses have their positives, but if we compare the two in four areas, I prefer one over the other. Let's take a look.
Valuation
One of the easiest ways to compare companies from different sectors is the price/earnings (P/E) ratio –this is the earnings multiple that the business is trading at. For example, if I bought a restaurant for $1 million that was making $250,000 in annual profit, the P/E ratio would be 4.
A lower number is seen as cheaper, though it's not necessarily better value.
According to the forecasts by UBS analysts, in FY25 Telstra is predicted to generate $2.15 billion of net profit and Westpac is projected to make $6.9 billion of net profit.
At the current Telstra share price, it's valued at 20.6x FY25's estimated earnings. The Westpac share price is valued at 17x FY25's estimated earnings.
While Westpac's earnings multiple is lower than Telstra's, UBS notes Westpac is trading noticeably higher than its long-term average.
Control over prices
Westpac is in a very competitive space, with numerous ASX bank shares wanting to grow their market share, such as Macquarie Group Ltd (ASX: MQG). Westpac also competes against names like ING, Commonwealth Bank of Australia (ASX: CBA), ANZ Group Holdings Ltd (ASX: ANZ) and National Australia Bank Ltd (ASX: NAB).
Mortgage brokers have become an important factor in the loan space. Brokers make it easier for prospective borrowers to compare loans, which has led to pricing competition and pain for the net interest margin (NIM), reducing profitability.
From my point of view, Westpac doesn't have much control over prices.
On the other hand, Telstra has felt comfortable increasing its mobile prices in the last few years. The latest increase was higher than inflation, but Telstra's strong market position has enabled the company to feel comfortable enough to do that. This can help its overall average revenue per user (ARPU) and net profit after tax (NPAT) grow.
Long-term profit expectations
In my opinion, profit growth is the most important factor for long-term success, as it can help encourage investors to push up the share price and lead to a growing dividend.
We already know what the potential forward P/E ratios are for both businesses.
Between FY25 and FY28, Westpac is projected by UBS to grow its net profit by 14.4% to $7.93 billion.
Telstra is forecast to grow its net profit by 37% between FY25 and FY28. The ASX telco share is projected to perform significantly better at growing profit.
Dividend yields
Dividend payments aren't guaranteed, and nor is growth, so we can't say with certainty that past returns are an indication of what will happen in the future. But looking at the last two dividends declared by the two businesses, Telstra currently has a grossed-up dividend yield of 6.5%, and Westpac a yield of 7.2%.
Foolish takeaway
For a long-term investor, I think Telstra shares could make a better investment because of the telco's pricing power and the expectation that its profit can keep growing, while still providing a solid level of dividends.
