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Over the past year, Barclays (LSE:BARC) has been one of the top performers in the FTSE 100 index. The Barclays share price is up 62%, significantly outperforming the index’s gains of 11.4%. The stock recently reached its highest level in over a decade.
With some concerns that it could be a little overvalued, I turned to the latest analyst forecasts to see if I could discover anything to help.
Positive overall sentiment
There are 19 banks or brokers that currently have a share price target out for the coming year for Barclays. Some 70% of them are Buy ratings, which is a positive sign immediately. For reference, the current share price is 374p.
The most optimistic view comes from Jonathan Pierce at Jefferies, with a target of 455p. I consider this optimistic because if this target was met, it would represent a further 64% rally from the current price. That does feel a little aggressive, but we’ll address that later.
On the other hand, the lowest expectation comes from Niklas Kammer at Morningstar. He believes the stock will fall to 306p over the next 12 months, roughly a 12% drop from the current levels.
When I look at the grouping as a whole, the average target price is 399p. The overall mood among analysts is positive, expecting the stock to move higher despite the strong rally already seen.
Adding in some flavour
There are several reasons why I’d agree with the experts here. The bank’s in the middle of its three-year transformation plan, and things are going well. Group income for Q2 of £7.2bn was up 14% year on year. The corporate banking division is benefitting from higher average deposits and lending balances. The UK arm is seeing higher income, thanks in part to the Tesco Bank acquisition.
So far through the three-year plan, it‘s already realised two-thirds of its £2bn gross cost efficiency savings target. It’s also well along in the multi-billion pound dividends and buybacks programme commitment, which runs through to 2026.
This substantial capital return, coupled with the efficient cost-cutting programme, should support earnings per share growth and boost investor sentiment further.
However, there’s no guarantee the stock will keep outperforming. It’s facing some reputational risks from regulators and the legal sector. Last month, it was fined £42m for poor handling of financial crime risks relating to anti-money laundering. There’s also fallout from a car finance mis-selling probe. Although Barclays’ exposure appears smaller than that of peer Lloyds Banking Group, it nonetheless poses a headache for investors.
When I balance everything up, I still believe the pros outweigh the cons. On this occasion, I agree with the forecasts and feel it’s a stock for investors to consider.
