Right now I’m looking at some of the most popular companies in the FTSE 100 and wider market to try and establish if there is still time for investors to buy in.
Today I’m looking at Banco Santander (LSE: BNC) (NYSE: SAN.US) to ascertain if its share price has the potential to push higher.
Current market sentiment
The best place to start assessing whether or not Santander’s share price has the potential to push higher, is to take a look at the market’s current opinion towards the company.
It would appear that at present, the market is cautiously optimistic about Santander’s outlook, as the economic situation within Europe improves.
What’s more, after a dismal 2012, when Santander’s profit collapsed by nearly 50%, the revelation earlier this year that the bank’s profit had jumped 90% during 2013 impressed investors. Rising profits were thanks in part to falling bad debt provisions, the total of which fell to €1.7bn for the year.
Upcoming catalysts
However, there are several major upcoming catalysts that could quickly change investors cautious outlook on Santander.
For example, the economic recovery within Europe, Spain in particular, remains fragile and Santander could report further bad debt losses if the situation deteriorates.
There is also the issue of Santander’s financial position, as the bank has come under scrutiny during the past few years for not holding enough capital.
And finally, Santander is at risk from an economic slowdown within emerging markets, South America especially, where the bank generates around half of its income. The IMF has recently downgraded growth forecasts for the region and the Fund now expects Brazil’s economy, the largest on the continent, to grow by only 1.8% during 2014.
Nevertheless, Santander’s current outlook is a lot brighter than it was just a year or two ago and if things go well, City forecasts expect the bank’s profit to jump 26% during 2014.
Valuation
With earnings growth of 26% pencilled in for 2014, Santander’s earnings are set to hit 40p per share for this year, which puts the company’s shares on a forward P/E of 14.4.
Unfortunately, this high valuation makes Santander look expensive in comparison to other London listed peers. Barclays, for example, currently trades at a forward P/E of closer to 9.
Foolish summary
Overall, with so many risks facing bank and its high valuation, I feel that Santander is overvalued at current levels.
