ANZ Valuation in Focus: What Two Key Models Suggest About the Bank’s Share Price

Highlights

• ANZ share price below sector valuation benchmarks
• PE ratio and dividend models imply upside potential
• Banking sector's stability remains crucial for long-term outlook

The current share price of ANZ Banking Group (ASX:ANZ) sits around $27.62 to $28. For many investors, this sparks a deeper question — what is the intrinsic value of ANZ shares, and how does it compare with sector peers?

Banking stocks like ANZ are often a key focus for income-seeking investors, especially due to their history of reliable dividend payments. Major players such as National Australia Bank Ltd (ASX:NAB) and Commonwealth Bank of Australia (ASX:CBA) also operate in an oligopolistic environment, which tends to support profitability and market stability.

Using PE Ratio as a Benchmark

One of the most straightforward valuation tools is the price-to-earnings (PE) ratio. By dividing the current share price by the company’s earnings per share (EPS), investors can quickly gauge how the market is pricing a company’s profitability.

For ANZ, using its FY24 EPS of $2.15 and a share price of $27.62, the resulting PE ratio is around 12.8x. This compares to the average PE ratio of 17x for the broader banking sector. If ANZ were valued in line with this average, the implied valuation using this model would be $35.73 per share — suggesting the current market price may be trading below its sector-adjusted valuation.

Evaluating via Dividend Discount Model (DDM)

Another key method for assessing bank shares is the Dividend Discount Model. It’s especially relevant for dividend-focused sectors like banking, where investors closely follow yields and payout consistency.

Assuming a recent annual dividend of $1.66 and applying a range of discount rates and dividend growth projections, a blended DDM approach produces an average valuation of $35.10. When using an adjusted dividend of $1.69, the valuation increases slightly to $35.74 — again, notably higher than the current share price.

These valuation models provide useful reference points, but they represent just part of the research puzzle. Understanding broader economic trends — such as interest rates, housing data, and employment levels — is essential. Furthermore, assessing how ANZ is positioning itself, whether through increased lending or diversifying revenue streams, can influence long-term potential.

Ultimately, while models like PE ratio and DDM suggest ANZ shares may be undervalued relative to fundamentals and sector norms, thorough research into the bank’s strategic direction and risk profile is key.