The easiest way to value the WBC share price

Core Insights - The article discusses the valuation of Westpac Banking Corp (WBC) shares, emphasizing the importance of using multiple valuation methods to assess whether the current share price is justified [1][2][3]. Valuation Methods - The PE ratio is a common tool for valuing bank shares, comparing the share price to earnings per share (EPS). WBC's current PE ratio is 20.1x, compared to the banking sector average of 19x, suggesting it may be slightly overvalued [4][6]. - Analysts recommend comparing the PE ratio of WBC with its peers to determine relative value, using the principle of mean reversion to estimate a sector-adjusted PE valuation of $37.22 for WBC [5][6]. Dividend Valuation - The Dividend Discount Model (DDM) is utilized to value WBC shares based on expected dividends. The last full-year dividend was $1.66, and using various growth and risk rate assumptions, the valuation ranges from $34.05 to $48.64 when considering fully franked dividends [7][11][12]. - The expected gross dividend payment of $2.30 leads to a higher valuation of $48.64, highlighting the impact of franking credits on share price [12]. Growth and Risk Rates - Different growth and risk rate scenarios yield varying valuations for WBC shares, with a 2% growth rate and a 6% risk rate resulting in a valuation of $40.25, while a 10% risk rate drops the valuation to $20.13 [13]. Research Practices - It is recommended to analyze at least three years of annual reports and management communications to form a comprehensive understanding of the company’s performance and outlook [14].