Is this the right time to invest in Westpac shares?

Is this blue-chip bank an appealing option right now?

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Just like the wider ASX stock market, Westpac Banking Corp (ASX: WBC) shares have suffered through a decline in the last few weeks. The S&P/ASX 200 Index (ASX: XJO) is down 2.3% since 2 April 2025, while Westpac shares are down by 4.2%.

With so many investments in the red over the past couple of weeks, investors are spoiled for choice of what they could buy.

The Australian economy is under the spotlight following the US tariffs on most goods from most countries. While Australia doesn't export a lot to the US, it is exposed through its trade relationship with China. Trump has put huge tariffs on China, which could impact the Chinese economy and Chinese demand for Australian commodities.

Of course, Westpac doesn't sell commodities to China. So, could this decline be a buying opportunity?

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Image source: Getty Images

Time to buy Westpac shares?

The broker UBS certainly thinks so, with a buy rating of $38. A price target implies where analysts think the share price will be 12 months from the time of the investment call. The price target suggests a possible rise of 24% from today.

Banking is seen as a somewhat defensive industry – borrowers pay their repayment every month and credit demand is largely stable year to year. Of course, occasionally there is a significant economic impact which can cause worries.

UBS pointed out in a note that Westpac recently hosted a strategy session with new CEO Anthony Miller.

The broker pointed out that only 100 days into the job, Westpac has impressed with the rate of change and transformation at the bank. Recent hires have been made in its business banking, as well as with the appointment of Nathan Goonan as the new chief financial officer (CFO), who is coming from the CFO role at National Australia Bank Ltd (ASX: NAB). These roles enhance Miller's executive team, according to UBS.

UBS thinks hiring Peter Herbert as chief transformation officer "outlines the commitment around accountability and timelines for project UNITE, both centrally and at a divisional level."

Another positive is potential cost improvements at the bank. UBS estimates overall cost improvements to be between $1 billion and $1.7 billion at the bank. Westpac has also guided that it expects to invest around $600 million in FY25, with 75% expected to be expensed. One major upcoming project is the mortgage simplification initiative, which is expected to cost $450 million and should reduce expenses by around $120 million per year.

Westpac also aims to improve its cost-to-income ratio to less than the average of its peers and to target a return on tangible equity (ROTE) greater than the average of its peers. UBS said this is a positive.

However, the market is still expecting Westpac's cost-to-income ratio to be more than 1 percentage point higher than that of the major banks.

ASX bank share valuation

According to UBS forecasts, Westpac's share price is valued at 15.5 times that of FY25's estimated earnings.

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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