Can WBC shares beat the ASX 200 (XJO) in 2025?

Core Viewpoint - The valuation of Westpac Banking Corp (WBC) shares can be approached through various methods, including the Price-Earnings (PE) ratio and the Dividend Discount Model (DDM), with the latter being more suitable for banks due to consistent dividends [3][6][10]. Valuation Methods - The PE ratio for WBC is calculated at 20.3x, compared to the banking sector average of 20x, indicating a sector-adjusted valuation of $37.52 based on earnings per share of $1.92 [5]. - The DDM approach uses the most recent full-year dividends and assumes a consistent growth rate, yielding a valuation of $35.10 based on an adjusted dividend payment of $1.61 per share [10][11]. - A gross dividend valuation, which includes franking credits, results in a higher valuation of $48.64 using a forecast gross dividend payment of $2.30 [11]. Risk and Growth Assumptions - The valuation process involves varying growth rates (2% to 4%) and risk rates (6% to 11%), with the share price valuation fluctuating significantly based on these assumptions [12]. - For example, at a 6% risk rate and a 3% growth rate, the valuation is $53.67, while at an 11% risk rate, it drops to $17.89 [12]. Additional Considerations - Understanding WBC's growth strategy is crucial, whether it focuses on increasing lending or non-interest income [12]. - Economic indicators such as unemployment, house prices, and consumer sentiment should be closely monitored as they impact the banking sector [13]. - The assessment of the management team's culture and effectiveness is also important, as it can influence the bank's performance [13].