For much of the past few years, the Barclays (LSE:BARC) share price has been trending higher. It has added a further 46% over the past year, and earlier this month hit the highest level since late 2007. Yet, with the potential for higher interest rates among major nations later this year, what does the coming year hold for the stock?
Riding the wave of strong results
Before we get to the analyst forecasts, it’s important to note the key factors that have supported the stock so far this year. A clear one in my eyes has been the bank’s financial performance. Barclays has continued to deliver resilient earnings across both its UK retail operations and investment bank. In fact, as the CEO noted in the Q1 results, the bank “delivered another solid quarter with a 13.5% RoTE in Q126, and double-digit returns in all our businesses”.
Every area is performing well right now, which provides a rosy outlook. Yet, special mention goes to the investment bank, as in Q1 it “generated over £4bn quarterly income for the first time”.
Another reason investors have become more positive is capital returns. Barclays has consistently generated surplus capital, allowing it to increase dividends and conduct share buybacks. It announced a £500m buyback back in April, with the divdiend per share now at 8.50p. This contrasts with the 3p back in 2021.
What the experts say
From the current share price of 516p, the average target price from the 19 contributors I can see is 571p. That’s just under an 11% return for the coming year if it proves to be accurate.
Despite the strong rally so far, many major research teams believe it could continue. For example, Goldman Sachs has the highest target price of 625p. JP Morgan isn’t far behind at 600p. In fact, no one has a target price below 500p for the year ahead.
Of course, these target prices for the next 12 months are subjective. They depend on the research and opinions of the author. But the takeaway here is that the vast majority of research providers expect the Barclays share price to appreciate further.
Adding my viewpoint
Looking ahead, I agree that there are still reasons to be optimistic. If interest rates remain relatively elevated compared with pre-pandemic levels, Barclays should continue generating healthy net interest income from its lending activities. Meanwhile, any further recovery by the investment bank could add significant additional profit to the company. Combined with continued cost savings and shareholder distributions, that could support further earnings growth over the next few years.
That said, investors shouldn’t ignore the risks. Banks are highly cyclical businesses, and even though Barclays has a diversified global footprint, it’s still exposed to what goes on in the UK or other key markets.
For example, a recession here in the UK could lead to higher loan defaults, forcing Barclays to increase provisions for bad debts and reducing profitability.
Yet, when I put everything together, including the forecasts, I believe the stock can continue to move higher. I already have enough banking exposure in my portfolio, but for investors who don’t, this could be one to consider.
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Jon Smith does not hold any positions in the companies mentioned.
