Looking back on analyst price targets for Barclays‘ (LSE: BARC) shares, they’ve just kept steadily rising. And the latest (24 June), warms things up even further.
Analyst Michael Christodoulou at Berenberg thinks Barclays deserves a share price of 620p — 21% ahead, at the time of writing. But why such a premium on the stock, and what are the chances of making it?
Why so upbeat?
Barclays shares have soared by a stunning 193% in five years. Much of that’s been down to a severe bank sector undervaluation working its way out. But the future now has to rely on the bank’s performance over the next few years.
The Berenberg update says Barclays’ growth in shareholder returns still has some way to go, and that it’s still on an attractive valuation. We’re looking at a forward price-to-earnings (P/E) ratio of 10 at the moment. And given that UK banks tend to trade at around 30%-50% below the FTSE 100 average, that seems probably about right to me.
But a lot depends on the outlook. And on that score, analysts forecast a 75% jump in earnings per share between 2025 and 2028. That would bring the P/E down to seven by then.
More on returns
There’s more to it than P/E valuations, of course. And at first-quarter time, both returns and liquidity looked very solid…
Barclays delivered another solid quarter with a 13.5% [return on tangible equity or RoTE] in Q126, and double-digit returns in all our businesses … We remain confident in delivering all our financial targets across a range of environments. This includes greater than 12% RoTE in 2026 and greater than 14% RoTE in 2028.
CEO CS Venkatakrishnan, Q1
And now, Christodoulou’s note suggests even better. It forecasts seeing a 2027 RoTE as high as 14.3%. If Barclays can offer upbeat guidance, and then beat it like this, I’m thinking the Berenberg target might come good.
Not unanimous
Before I get too excited, not all analysts agree — and the current average price target stands at 551p. That would suggest Barclays’ shares are in for something like a 7.5% rise, which is still positive. But it also supports the idea that bank shares really do deserve to be valued at around their historic discount to the Footsie.
We also face even more economic uncertainty. The odds-on favourite to become our next Prime Minister, Andy Burnham, wants more state control over key industries. And they don’t come much more key than finance. So the possibility of tighter banking regulation has to be real.
What’s my take, then? I think Barclays is very much one to consider based on what I see as a strong long-term outlook for the banking sector. But investors might prefer to join me in waiting to see what the next few months have to offer — starting with first-half results on 28 July.
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Alan Oscroft does not hold any positions in the companies mentioned.
