Let’s take a look at the potential future for this ASX bank share.
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If you had to guess which ASX shares would return more than 40% by 2024, you’d probably pick some of the leading tech and other growth stocks.
Westpac Banking Corp (ASX: WBC) shares have also seen big gains this year, up 43%.
What’s interesting to me is how well the ASX bank’s share price performs in 2024, given its FY24 results, where net profit after tax (NPAT) fell 3% to $7 billion due to higher costs from mortgage pricing competition and inflation.
Westpac’s strong share returns were great for shareholders, but that’s all in the past. What will the year ahead hold?
Let’s take a look at what some experts think of the future performance of ASX bank shares.
Views on the ASX bank share
Let’s first hear some opinions from Darren Thompson, head of asset management at Equity Trustees Asset Management. He said:
The outlook for earnings (EPS) and dividends (DPS) in the domestic market depends largely on the performance of banks and resources.
Bank earnings are expected to remain broadly flat amid modest credit growth, continued competition limiting net interest margins, ongoing cost pressures, and cyclically low bad debt provisions.
I think these are reasonable assumptions. Ultimately, he suggests that banks like Westpac may see flat earnings overall. Normally, higher profits are needed to improve valuations, but we see that despite a 3% drop in profits in 2024, Westpac’s share price has risen by 43.
Now, let’s look at what broker UBS has to say about ASX bank shares.
UBS believes there is still room for further capital management through share buybacks or special dividends as the tax balance is around $3.5 billion. The brokerage recommends repurchasing $1.7 billion of shares in fiscal 2025 and $1.5 billion in fiscal 2026.
The broker also noted that while cost growth was a headwind, Westpac’s underlying net interest margin (NIM) trends “continued to be encouraging.” Competitive pressures in home lending were “offset by higher capital and deposit yields.”
UBS has a neutral rating on Westpac shares with a price target of $33. This suggests little volatility for Westpac shares over the next year.
Earnings forecast for Westpac shares
UBS currently forecasts that Westpac could generate $22 billion in revenue, $10 billion in pre-tax profit and $7 billion in net profit in FY2025. This is very similar to the profits that the ASX bank will generate in FY2024.
Westpac is currently trading at about 17 times its expected earnings for fiscal 2025, according to the brokerage. UBS also said the bank is trading at more than 16 times its two-year forecast earnings, compared with a 15-year historical average of 12.3 times.
In other words, it is significantly more valuable than it has been in the past fifteen years.
Motley Fool contributor Tristan Harrison does not own any of the stocks mentioned. Motley Fool Australia’s parent company, Motley Fool Holdings Inc., does not own any of the stocks mentioned. Motley Fool Australia does not own any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorized by Scott Phillips.
