How does Westpac relate to the CBA (ASX: CBA) stock price?

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As we move into the new year, Australian finances have regained some of the losses in previous months as investors regain confidence in the sector.

Two of the Australian bank heavyweights have fallen on the investment bank Citis radar in a recent note to customers.

In the update, Citi compared Commonwealth Bank of Australia Ltd (ASX: CBA)’s buyback program for it by Westpac Banking Corp (ASX: WBC)’s off-market buyback program recently announced.

Other than that, in a list of analysts provided by Bloomberg Intelligence, the mood between the two banks seems to be mixed, with Westpac coming out on top in many of the brokers’ individual assessments.

So how does Westpac relate to the CBA stock price? Let’s see.

How do brokers compare CBA and Westpac stocks?

The team at Citi reckons that while Westpac appears to have improved its offering in its off-market buyback program, it is most likely less valuable than CBA’s.

Part of the reason for this is the complexity that out-of-market repurchases create and have arisen for Westpac in terms of tax and payment structuring.

Last week, Westpac went back to the drawing boards with its buyback offer and subsequently changed the rebate and extended the offer period for its proposal.

Citi says this has resulted in a modest improvement in after-tax returns for investors and the bank, but it is still far from the CBA’s 13% return.

The broker says that with “less tax benefits offered, we expect that Westpac is likely to receive significantly less demand than the CBA, but has promised to divert any deficits to a buyback in the market ”.

Still, Citi feels the equation is far more balanced now that Westpac has committed to a repurchase of its shares on the market should it exceed the $ 3.5 billion off-market threshold.

Despite the cautious tone, Citi remains bullish on Westpac and insists it is the cheapest of all Australian banks right now.

The company rates Westpac a purchase and values ​​the bank at $ 27.50 per share. Meanwhile, the team at Morgans, Macquarie, Goldman Sachs, JP Morgan, Credit Suisse and Morgan Stanley each have the CBA stock price as a sale right now.

JP Morgan specifically notes the CBA’s “very expensive valuation” right now. Although it predicts revenue at the upper end of the competitor group in FY23 / 24, it sees pre-commission profit growth being compressed relative to peers.

The broker says that “further capital management is likely in FY23, supported by its remaining franking balance; however, the surplus capital position is smaller than peers on a market value-adjusted basis”.

Given these factors, JP Morgan sees the CBA underperform the other big ones. It estimates the bank to sell with a price target of $ 90.

What is the feeling?

If you compare the two stocks in terms of analyst sentiment, the consensus price target of CBA is $ 92.73, and 69% of the analysts covering the company recommend it as a sale.

Trading at $ 102.24 at last check, this suggests that the CBA has nearly $ 10 in downside potential built into the consensus rating.

Meanwhile, Westpac has a consensus rating of $ 25.27, and only 25% of analysts recommend it as a sale. With the bank trading at $ 21.54 at the last check, analysts state that the Westpac stock price is currently undervalued given this upward target.

Despite this, one reveals some interesting results to look a little deeper at the data. The spread in analyst price targets is just over 53% for both companies, whereas the number of analysts in favor of buying / selling for each name has been relatively constant over the last 12 months.

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