Westpac Banking Corp (ASX: WBC) shares have raced ahead of the benchmark over the past 12 months.
Shares in the S&P/ASX 200 Index (ASX: XJO) bank stock closed up 1.15% at $33.40 on Tuesday. That sees the stock up 39.57% since this time last year, which compares quite favourably to the 10.83% gain posted by the ASX 200 over this same time.
And we've not yet included the $1.66 in fully franked dividends Westpac paid to eligible shareholders over the year. If we add those back in, then the accumulated value of Westpac stock has soared a blistering 46.6% in 12 months.
But according to MPC Markets' Jonathan Tacadena, the 12 months ahead could be a very different story for the big four Aussie bank (courtesy of The Bull).
Why Westpac shares could struggle in 2025
Westpac shares, along with those of other major Australian banks, "have benefited from strong fund flows from superannuation funds and exchange traded funds due to their heavy index weighting", said Tacadena, who has a sell recommendation on Westpac shares.
As for that heavy index weighting, Westpac currently commands a market cap of almost $115 billion.
"The shares have risen from $23.70 on January 25, 2024, to trade at $32.895 on January 23," Tacadena noted.
Citing the first two reasons investors should consider taking profits on the ASX 200 bank stock, he said, "After recent gains, dividend yields have fallen, and the earnings outlook appears pressured given stronger competition."
At yesterday's closing price, Westpac shares trade on a fully franked trailing dividend yield of 5.0%.
Coming to the third reason Tacadena thinks the bank stock could come under pressure in 2025, he said, "In our view, Westpac's shares, in particular, appear overvalued in this challenging and recently rising bond yield environment."
Westpac stock trades on a price-to-earnings (P/E) ratio of more than 17 times.
What's been happening with the ASX 200 bank stock?
The last price-sensitive news to directly impact Westpac shares came on 4 November, when the ASX 200 bank reported its full-year results.
Among the highlights, Westpac's net interest income was up 3% year on year to $18.9 billion. Non-interest income went the other way, sliding 15% to $2.84 billion.
With operating expenses up 7% to $10.94 billion, Westpac reported a 3% decline in full-year net profit to $6.99 billion amid heightened competition in the mortgage market.
The big four bank also declared a $1 billion share buyback during the year.
Westpac shares closed up 0.9% on the day.
