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Is the Westpac (ASX:WBC) share price the cheapest bank to buy right now?

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At the latest Westpac Banking Corp (ASX: WBC) share price, is it the cheapest bank that Aussies can buy?

Westpac used to be the second biggest bank in Australia. However, the deterioration of its market capitalisation and the strength of National Australia Bank Ltd (ASX: NAB) has meant that it has slipped down the rankings.

But the market capitalisation doesn’t necessarily mean one bank is cheaper than another.

One of the popular ways to compare banks is by the multiple that their earnings are valued at. This is also called the price/earnings ratio, or p/e ratio.

There are many different banks to compare on the ASX.

Westpac is one of the largest ones. NAB, Commonwealth Bank of Australia (ASX: CBA) and Australia and New Zealand Banking Group Ltd (ASX: ANZ) are the other big four banks.

Then there are a few smaller financial institutions like Bank of Queensland Limited (ASX: BOQ), Bendigo and Adelaide Bank Ltd (ASX: BEN) and Mystate Ltd (ASX: MYS).

Suncorp Group Ltd (ASX: SUN) and Macquarie Group Ltd (ASX: MQG) also have sizeable banking divisions, but they have large non-banking operations as well which makes them less comparable.

Using the earnings estimates on Commsec, let’s compare the different forward earnings multiples for FY23 – there isn’t much of FY22 left, which included differing COVID-19 impacts.

The Westpac share price is valued at 12x FY23’s estimated earnings.

Other banks

CBA shares are currently valued at 18x FY23’s estimated earnings.

The NAB share price is valued at 13x FY23’s estimated earnings.

ANZ shares are valued at 11x FY23’s estimated earnings.

So, of the big four ASX banks, Westpac is not the cheapest. But it is the second cheapest on the projected earnings side of things.

But what about the smaller banks?

The BOQ share price is valued at 10.6x FY23’s estimated earnings, so it’s a little cheaper than ANZ.

Bendigo Bank shares are priced at 12x FY23’s estimated earnings.

The Mystate share price is valued at 12x FY23’s estimated earnings.

Is the Westpac share price a buy?

It may not be the cheapest bank on the ASX, but analysts can still rate the business as a buy.

Brokers are pretty mixed on the bank at the moment. For example, Morgans and UBS both rate Westpac as a buy, with price targets of $29.50 and $27 respectively. That implies a potential upside over the next year of 34% and 23%, respectively. Both of these brokers say that Westpac is their favourite bank.

However, others are less convinced. The broker Morgan Stanley only rates Westpac ‘equal-weight’ because of uncertainty about the revenue, with a price target of just $22.20 – that’s only slightly higher than where it is right now. But, it did note the start of Westpac’s cost reduction actions.

Credit Suisse is another broker that is ‘neutral’ on the bank with a price rating of $23. That would imply a mid-single-digit rise for the Westpac share price.

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