Westpac Banking Corporation: an analysis of its share price

Westpac shares have tumbled in recent weeks, as investors weigh the potential consequences of the allegations by AUSTRAC that the bank violated AML/CTF laws some 23-million times.

The context:

Westpac shares have tumbled in recent weeks, as investors weigh the potential consequences of the allegations by AUSTRAC that the bank violated AML/CTF laws some 23-million times. Adding to an already challenging business environment, due to continued fall-outs from the Hayne Royal Commission, and a falling interest rate environment, Westpac shares have shed nearly 10% since the end of November when the AML breaches were reported, and almost 20 per cent from its yearly highs in December. The bear’s claws have clearly been out for Westpac in recent months. But with the bank’s shares having fallen as far as they have, they question naturally arises: when do Westpac shares start looking like a buy?

Westpac shares: fundamental analysis

Fundamental indicators suggest that Westpac might currently be a little undervalued, implying that, at its current price of around $24.00, the bank’s stock presents an attractive buying opportunity. According to data compiled by Bloomberg, the bank’s stock possesses, still, a 62.5% hold rating amongst brokers, to go with a consensus price target of $26.08. Now a caveat: these figures are currently subject to a high risk of downward revision, as Westpac shares remain in a general downgrading cycle amongst brokers. Nevertheless, when marked against historical averages, Westpac stock is going cheap. A price-to-earnings ratio of 12.5 is below the 10-year average of 13.05, and at 7.5%, its next dividend yield is relatively juicy.

Consensus Price Target

Consensus Rating

Price-to-Earnings

Dividend Yield

$26.08

Hold (62.5%)

12.5

7.5%

Westpac shares: technical analysis

The technicals suggest Westpac shares are oversold currently, but that momentum remains to the downside. The Daily RSI is delivering an oversold signal, flashing a roughly 21 reading by that measure right now. But momentum is deeply skewed to the downside, with the MACD delivering a negative reading, and a crossover in the 50-day and 200-day EMA signalling an ominous “death-cross”. The price-action is undoubtedly bearish. But there are some saving emerging, supportive signs for Westpac shares. Price has seemed to have found some level of support around the $24 mark. While compared to an index of bank shares, Westpac shares are trading at a considerable discount, likely reflecting a greater, but temporary risk-premium in the price.

Market set-up:

Investors will undoubtedly be keen to pick-up Westpac shares at a bargain; but the issue is a matter of timing. The actual penalties associated with Westpac’s breaches of AML laws are yet to be quantified, and therefore confidently priced-in to the market. Hence, until the cost of these penalties are known, a risk-premium may well remain in the bank’s share price. However, once the costs do come to light, and become discounted, market fundamentals suggest Westpac shares are currently cheap, and could be a bargain “buy”. A turn higher in the RSI out of oversold levels, and a swing in the MACD to the upside, could confirm the market has turned bearish to relatively bullish on Westpac shares.


This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients.

Explore the markets with our free course

Discover the range of markets and learn how they work - with IG Academy's online course.

Live prices on most popular markets

  • Forex
  • Shares
  • Indices
liveprices.javascriptrequired
liveprices.javascriptrequired
liveprices.javascriptrequired

You might be interested in…

Find out what charges your trades could incur with our transparent fee structure.

Discover why so many clients choose us, and what makes us a world-leading provider of CFDs.

Stay on top of upcoming market-moving events with our customisable economic calendar.