Last month, Westpac Banking Corp (ASX: WBC) shares soared 6% after the company released its most recent quarterly results.
For the year to date, Westpac has risen 15%. Yesterday, the big four bank stock tumbled nearly 4%, presenting a rare dip in the stock price.
ASX investors may be wondering whether this is a 'buy the dip' opportunity, or if the stock has further to fall.
Commonwealth Bank of Australia (ASX: CBA) is often cited as the most overvalued S&P/ASX 200 Index (ASX: XJO) banking stock. Indeed, experts continue to warn that CBA shares are trading materially above their intrinsic value.
Westpac, Australia's third-largest bank by market capitalisation, receives less attention.
Let's see what one leading expert had to say recently.
Buy, hold, or sell Westpac shares?
In a 2 September research note, Macquarie Group Ltd (ASX: MQG) provided its view on Westpac shares.
The broker reaffirmed its underperform rating on the bank.
Macquarie also affirmed its price target of $30.
Given that Westpac shares closed at $37.16 yesterday, this suggests they have nearly 20% further to fall over the next 12 months.
Macquarie said:
WBC remains expensive, trading at ~20x FY26E P/E (1-25% premium to ANZ and NAB). With execution risks around the UNITE program, in addition to headwinds from rate cuts, we continue to see risk to WBC's earnings and elevated multiple. Maintain Underperform.
The broker expects intense competition and rate cuts to weigh on margins.
In a recent article in the Australian Financial Review, Westpac's new business banking boss, Paul Fowler, acknowledged heightened competition and discussed how the bank was addressing it.
Fowler told the AFR:
I would say [the market] is highly competitive, and we are all on our toes. But I feel very comfortable about the balance we are achieving at the moment…We have a growth mandate, and are making sure we do that responsibly with the right returns and risk settings in mind.
Westpac has hired 135 business bankers this year, and plans to hire a further 350 bankers over the next two years in an attempt to gain market share.
In July, Westpac had a 16.1% business lending market share, up from 15.3% the same time last year.
Macquarie remains unconvinced
However, in its research note, Macquarie appeared sceptical of the financial benefits of Westpac's growth strategy, stating:
WBC has seen solid lending growth over the last two years, however, profits have gone backwards. A key driver of this has been significant investments made in the business bank, including new front-line bankers and systems (primary BizEdge). While these investments appear to be driving incremental improvements within the business, we are sceptical of the revenue benefits they will ultimately deliver, and their ability to offset headwinds elsewhere.
What about the other ASX banking stocks?
Unfortunately, Macquarie continues to see limited value in other ASX banking stocks, either.
The broker reiterated its underperform rating and price target of $105 on CBA shares, suggesting a material decline from the current share price of $164.
As for National Australia Bank Ltd (ASX: NAB) and ANZ Group Holdings Ltd (ASX: ANZ), the broker remains neutral. Their respective price targets of $42.96 and $33.48 suggest a slight rise over the next 12 months.
However, according to Macquarie, the most compelling pick of the sector remains Judo Capital Holdings Ltd (ASX: JDO). The broker has an outperform rating on the stock and price target of $1.90, which is well above its current share price of $1.64.
