Are Westpac shares a buy following the bank's big tech update?

Westpac Banking Corp (ASX: WBC) shares are underperforming on Thursday.

In morning trade, the banking giant's shares are trading relatively flat.

As a comparison, the ASX 200 index is up 0.8% at the time of writing.

Why are Westpac shares underperforming?

Today's softness appears to have been driven partly by a subdued reaction to its technology simplification plan from brokers.

One of those brokers was Goldman Sachs (NYSE: GS).

While its analysts see big positives from the plans, they also acknowledge that there are big execution risks. Particularly in the current environment where large projects have seldom stayed on budget. They explain:

WBC's technology simplification plan has been a long time coming, and we believe it does, over time, have the potential to materially improve WBC's relative productivity positioning. While management believes it can be funded with A$1.8 bn in FY24 and then A$2 bn p.a. thereafter of investment spend, we do acknowledge the high level of execution risk involved given historically banks' large scale transformation programs have struggled to stay on budget, and we are currently operating in an elevated inflationary environment.

Should you invest?

At present, Goldman doesn't see enough of a reward on offer with Westpac shares to justify an investment. It adds:

Trading a 12-mo forward PER of 14.2x (15 year historic average of 12.7x), we remain Neutral rated

The broker has retained its neutral rating with a slightly trimmed price target of $23.41.

Based on the current Westpac share price of $26.00, this implies potential downside of 10% for investors over the next 12 months.

Though, if we throw in the estimated 5.5% dividend yield that Goldman expects in FY 2024, the total potential loss reduces to a more modest 4.5%.

Westpac shares are up 21% over the last 12 months.

The post Are Westpac shares a buy following the bank's big tech update? appeared first on The Motley Fool Australia.

Motley Fool contributor James Mickleboro has positions in Westpac Banking Corporation. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended Goldman Sachs Group. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

The Motley Fool's purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, The Motley Fool's free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson. 2024