The Westpac Banking Corp (ASX: WBC) share price has risen by over 25% in the two weeks since Monday, 22 May. This has been the share’s longest consecutive rise in value since the market low point on 23 March. In total, the Westpac share price has risen by 33% from that point to last Friday.
With the ASX expected to open strongly after the drop in US unemployment figures, I believe the Westpac share price will continue to improve its year to date performance.
Why did the Westpac share price rise?
All four of the big banks have seen similar rises. Australia and New Zealand Banking Group Limited (ASX: ANZ) has led the charge with a share price rise of 29.8% over the same period. Positive news in relation to the reopening of the economy has helped this rise. However, respected UBS analyst Jonathan Mott also had an impact with a very positive outlook for banks in the near term.
Noting how bank shares had underperformed, on Friday Mr Mott doubled down on his optimism placing ‘buy’ ratings on both Westpac and NAB. Over the past month, Morgan’s analyst Azib Khan was also very bullish on the prospects for the Westpac share price. As was Nathan Zaia who, on the Nabtrade website, valued Westpac at $25 per share in early May.
This is a 33% premium to Friday’s closing price of $18.79 and would take it past its position on 1 January this year.
Dark clouds on the horizon
Alan Kohler reported Monday that deferred loans totalled $224 billion or 90% of the equity capital of the four major banks. Current estimates calculate loan impairments for Westpac rising to 0.5% for the next two years. Up from charges as low as 0.1% of loans over the last three years.
Westpac is of course also embroiled in the money laundering scandal. The company released a very unflattering statement to the ASX on 4 June revealing the outcomes of its internal review. Westpac CEO, Mr Peter King said “While the compliance failures were serious, the problems were faults of omission. There was no evidence of intentional wrongdoing,”.
The financial crimes regulator, AUSTRAC, lodged a reply document in court on Friday dismissing Westpac’s defence in May.
Foolish takeaway
Westpac has changed its CEO and Chairman since the money laundering scandal broke last year. The share price has risen by 25% in the past two weeks and I believe it will see an increase in line with the broader market. If you purchased Westpac shares at Friday’s close, you would lock in a price that has a trailing twelve-month dividend yield of 9.26%, although the decision on the dividend payment has been deferred.
Westpac definitely has some rough road ahead of it however I believe it to be a very sound company with the new management in place. If you are willing to ride through these rough patches, then I feel Friday’s close is a good entry point for an investment over the medium to long term.
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Motley Fool contributor Daryl Mather has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. 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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