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Westpac shares: two models produce a valuation range of $34 to $49
Westpac's PE and dividend discount models produce a wide valuation spread. The gross DDM, including franking, values the stock at $48.64, 37% above the current $35.37 price.
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Westpac shares trade at $35.37. Two common valuation methods produce a range from about $34 to $49, depending on assumptions about dividends and franking credits.
The price-earnings ratio uses FY24 earnings of $1.92 per share. That gives a PE of 18.4x. The banking sector average is 19x. Applying that sector average to Westpac's earnings yields a valuation of $36.20. The stock sits at a small discount to that level.
The dividend discount model values a stock by discounting future dividends back to today. Westpac paid $1.66 per share in dividends over the last 12 months. Using a dividend growth rate and a risk rate between 6% and 11%, the model returns a valuation of $35.10. Adjusting the dividend to $1.61 per share drops that to $34.05.