Barclays‘ (LSE: BARC) shares have climbed 43% in the past 12 months. But forecasts for the next few years make me think this could still be one of the FTSE 100‘s best bargain buys.
Analysts are bullish, for one thing. And they have an average price target on the stock of 539p. That’s 16% ahead of the price at the time of writing. I reckon that could still leave the shares too cheap.
Best value bank?
We’re looking at a forecast price-to-earnings (P/E) ratio of just 8.6 for the current year… dropping as low as 6.1 by 2028, based on expected earnings growth.
If Barclays’ shares should hit that 539p target in the short term, it would put the P/E at 10. That’s still way below the long-term FTSE 100 average.
And it gets better… the forecast P/E for 2028 would come in at only 7.1. That’s about half the index average. And it could mean a stunning undervaluation for arguably the UK’s best international bank — not that there are many contenders for that title, mind.
Shareholder rewards
Our capital position remains robust with a 14.1% common equity tier 1 (CET1) ratio and we are announcing a £500m buyback today.
CEO CS Venkatakrishnan, Q1 results
The forecast dividend yield isn’t too exciting at around 2%-3% (depending on who you ask). And I see the company returning the current cash surplus as a buyback as telling. It could boost the dividend instead, but buying back shares suggests the board sees them as too cheap.
It fits with Barclays’ stated policy at full-year 2025 results time. The company said it plans “to return at least £10bn of capital to shareholders between 2024 and 2026, through dividends and share buybacks, with a continued preference for buybacks“.
While short-term investors might prefer bigger dividend payouts, I like the Barclays approach. It suggests the board is more focused on long-term total returns than immediate feel-good actions.
Global and domestic dangers
Buybacks can also be a better way to return cash if futures amounts available might be erratic. And I think that highlights the main risks facing the bank right now. Is it really possible for management to keep its focus clearly on Barclays’ diversified activities when they’re all under pressure?
Global investment banking is a high-profile activity — and it’s going well enough at the moment. But that’s a very volatile business, and it’s dominated mainly by US banking giants.
At the same time, Barclays has to cope with a shaky UK economy. We’ve just learned the economy shrank 0.1% in April, hit by the Middle East conflict.
What’s the bottom line
The risks that come with buying Barclays’ shares are real, I’m sure of that. But with that valuation, I still think investors could do well to consider them right now. Only the fact that I own Lloyds Banking Group shares keeps me away — staying diversified is essential.
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Alan Oscroft owns shares in Lloyds Banking Group.
