Can Westpac (ASX:WBC) Outperform the ASX 200 (ASX:XJO) in 2025?

April 29, 2025 02:33 PM AEST | By Team Kalkine Media

Can Westpac (ASX:WBC) Outperform the ASX 200 (ASX:XJO) in 2025? — Image source: Shutterstock

Valuation through PE Ratio

The price-to-earnings (PE) ratio remains one of the easiest and most popular ways to start a valuation. By dividing Westpac’s current share price of $32.65 by its FY24 earnings per share (EPS) of $1.92, the PE ratio works out to 17x. This sits slightly below the banking sector's average PE of 18x.

If Westpac’s EPS were multiplied by the sector average PE, the implied valuation would be approximately $34.15. Comparing similar companies like Bank of Queensland (ASX:BOQ) helps understand if WBC is reasonably priced or if market sentiment demands a deeper investigation.

Dividend-Based Valuation

Another useful approach for banking stocks is the Dividend Discount Model (DDM). Given the consistency of dividend payouts among Australian banks, this method provides another layer of valuation.

Using Westpac’s latest dividend of $1.66 and assuming stable growth, a risk rate of between 6% and 11% was applied. The average valuation resulting from this method was $35.10. Factoring in an adjusted dividend of $1.61 brought the valuation closer to $34.05.

An even more optimistic view comes from considering grossed-up dividends (including franking credits), which would value WBC shares at around $48.64. These various models highlight that Westpac could offer attractive value compared to its current share price.

Beyond Numbers: Key Considerations

Valuations alone don't tell the full story. Understanding Westpac’s strategic direction — whether it focuses on lending growth or fee-based income — remains critical. Broader economic factors such as employment levels, property markets, and consumer sentiment will likely influence future earnings.

Additionally, assessing the strength of Westpac’s management and corporate culture adds another dimension to the evaluation. While numbers form the basis of many investment decisions, leadership quality and internal culture are just as important in determining long-term success.

Westpac (WBC) may well have the potential to beat the broader market in 2025, but careful analysis beyond headline metrics is essential.

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