JPMorgan upgrades Westpac stock rating to Neutral on resilient earnings

Investing.com - JPMorgan has upgraded Westpac Banking Corp. (ASX:WBC) (NYSE:WBK) from Underweight to Neutral and raised its price target to AUD36.00 from AUD30.80. According to InvestingPro data, Westpac’s shares have shown resilience amid the challenging banking environment, with investors closely monitoring its valuation metrics and dividend sustainability.

The upgrade follows Westpac’s financial results, which JPMorgan noted were in line with expectations on FY25 net profit after tax (NPAT), though 1% below on pre-provision profit due to very low impairment charges. The current macroeconomic environment is providing certainty on credit costs, with Westpac largely maintaining its provision coverage.

JPMorgan highlighted that strengthening system mortgage growth will benefit Westpac, although the bank needs to improve its Proprietary channel’s share of flows. The firm also noted that Westpac’s business lending strategy has improved Market Focus Index (MFI) scores, and despite cost growth impeding profit growth in this division, it adds confidence for further market share gains in the medium term.

The analysis indicates Westpac will likely face more severe net interest margin (NIM) pressures than peers over the next 18 months due to quicker earn-through of the higher rate environment. However, JPMorgan views the resilience in Westpac’s earnings and the broader banking sector as attractive to investors amid difficult conditions in other sectors.

While JPMorgan acknowledges Westpac is "by no means cheap" at 19x FY26 estimated price-to-earnings ratio, the bank’s three-year forecasted earnings per share compound annual growth rate of approximately -4% and few obvious near-term catalysts for a de-rating supported the upgrade to Neutral. Investors seeking deeper insights into Westpac’s valuation relative to peers and comprehensive banking sector analysis can access detailed financial metrics through InvestingPro, which offers exclusive Pro Research Reports for over 1,400 stocks including major financial institutions.

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