All big 4 banks have outperformed the S&P/ASX 200 Index (ASX: XJO) by a wide margin over the past 12 months.
Over the past few quarters, analysts have warned that they have become overvalued.
Image source: Getty Images
What lies ahead?
In a research note dated 9 July, Macquarie Group Ltd (ASX: MQG) revealed its expectations for Australia's four largest banks for the upcoming reporting season.
The broker expects the banks' earnings to hold up in the 2H25 results and 3Q25 updates. However, Macquarie continues to see medium-term earnings downside risk in FY26 and FY27, driven by falling interest rates and elevated competition.
In its research note, the broker also addressed its individual expectations for each big 4 bank.
Westpac Banking Corp (ASX: WBC)
Over the past 12 months, Westpac shares have risen 23%.
In terms of Westpac's upcoming results, Macquarie expects:
[Macquarie's] 2H25E forecasts are ~1-2% ahead of consensus on a preprovisions basis. This is largely driven by better markets income, while margins are broadly in-line.
Westpac is currently trading on a price-to-earnings (P/E) ratio of 17.
Macquarie currently has an underperform rating and a price target of $27.50 on Westpac shares. Given that shares are changing hands for $33.37 at the time of writing, this suggests a 14% downside from here (including both capital losses and dividends).
National Australia Bank Ltd (ASX: NAB)
NAB shares have risen 11% over the past 12 months. However, since 7 April, they are up an impressive 23%.
Commenting on NAB's upcoming results, Macquarie said:
[Macquarie is] marginally ahead of consensus on a pre-provision basis in 2H25E, largely driven by better markets income. However, [Macquarie] expect NAB's BDDs to be slightly above consensus and their credit quality to continue to lag peers.
NAB is also trading on a P/E ratio of 17.
Macquarie said NAB had previously been its preferred big 4 bank last quarter; however, its relative re-rating had weighed on its conviction.
Macquarie currently has a neutral rating on NAB shares and a price target of $35.00. Given that shares are trading at $39.50 at the time of writing, this suggests 7% downside from here (including capital losses and dividends).
Commonwealth Bank of Australia (ASX: CBA)
CBA shares have risen 40% in the past 12 months, more than the big 4 banks.
On the subject of CBA's upcoming results, Macquarie advised:
Despite CBA's extreme valuation, [Macquarie] see limited earnings risk in the near term. We are ~1% ahead of consensus for 2H25E, largely driven by modestly better than expected margin outcomes. However, as the RBA's easing cycle gathers pace, [Macquarie expects] margin pressures to ultimately impact margins, driving [Macquarie's] below-consensus forecasts for FY26-27E.
Trading on a P/E ratio of 32, CBA is considered the most expensive banking stock in the world.
Macquarie has an underperform rating on CBA shares and a price target of $105. Given that shares are currently changing hands for $178.90, this suggests a 41% downside over the next 12 months (including capital losses and dividends).
ANZ Group Holdings Ltd (ASX: ANZ)
ANZ shares are up just 2% over the past 12 months.
In its 9 July research note, Macquarie said:
While ANZ does not generally provide a detailed quarterly update, it is possible that the new CEO could change this to improve transparency.
Although [Macquarie see's] the greatest potential for valuation upside at ANZ, [Macquarie remains] cautious ahead of a potential rebasing of earnings expectations and limited visibility into the new CEO's approach to strategy and execution.
ANZ is currently trading on a P/E of 14, the lowest amongst the big 4 banks.
Macquarie has a neutral rating on ANZ shares and a price target of $27.50. Given that shares are currently changing hands for $30.06, this suggests 9% downside from here (including capital losses and dividends).
What should I buy instead?
According to Macquarie, all big 4 banks will go backwards over the next 12 months.
However, the broker named one banking stock it expects to outperform. Macquarie has an outperform rating on Judo Capital Holdings Ltd (ASX: JDO) with an attached price target of $1.80. Given that Judo Bank shares are trading at $1.61 at the time of writing, this suggests 12% upside from here, including capital gains and dividends.
According to Macquarie, those looking to gain exposure to more attractively valued ASX banking stocks should consider Judo.
