ADRs of Westpac Banking Corporation have been on an uptrend since late June, aided by improving earnings momentum. This Zacks #1 Rank (Strong Buy) Australian bank gained 24.7% since then and is expected to report strong fiscal 2012 earnings.
Interim Earnings Results Stable
On May 3, Westpac reported results for the six months ended March 31, 2012 with cash earnings of $5.25 per ADR, slightly down from the year-ago earnings of $5.28. Moreover, earnings per ordinary ADR were $4.99, down 26% year over year. An improved top line and low provisions to gross loans were the positives. Yet, increased operating expenses were a headwind.
Net interest income increased 10.3% to $6.4 billion. Non-interest income climbed 8.0% to $2.7 billion on a year-over-year basis. However, net interest margin contracted 1 basis point to 2.16%. The company's operating expenses scaled up 11% to $4.0 billion over the same period.
Credit metrics deteriorated at Westpac. Total provisions to gross loans were 86 basis points, down 16 basis points year over year. Moreover, provisions to performing non-housing loans contracted 18 basis points over the same time frame.
Earnings Estimates on the Move
The Zacks Consensus Estimate for fiscal 2012 increased 6.5% to $10.74 over the last 30 days, while the Zacks Consensus Estimate for fiscal 2013 moved up 6.8% to $10.73 in the same time.
Valuation Looks Reasonable
ADRs of Westpac currently trade at 11.3x 12-month forward earnings, a 43% premium to the peer group average of 7.9x. Its price to book ratio of 1.6 is at a substantial premium to the peer group average of 0.5.
The company has a trailing 12-month ROE of 16.7%, compared with the peer group average of 6.6%. This implies that the company reinvests its earnings more efficiently than its peer group.
Chart Shows Strength
Westpac has witnessed strong price momentum since June 26, with the expectation of improved second-half earnings. Moreover, the company has been continuously outperforming its 200-day moving average over the last 3 months. The year-to-date return for the stock came in at 19.0% compared with the S&P 500s return of 8.5%.
Headquartered in Sydney, Australia, Westpac provides various banking products and services. The company, formerly known as Bank of New South Wales, was founded in 1817 and conducted business through 1,532 banking centers as of September 30, 2011. It operates in Australia, New Zealand and the Pacific Islands. With a market capital of about $73.5 billion, Westpac competes with The Bank Of Nova Scotia (BNS) among others.