Why this FTSE 100 company is the first I’m buying for my 24/25 Stocks and Shares ISA

As a new Stocks and Shares ISA year gets underway, it’s time to start searching for my next additions. Barclays makes the cut.

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Barclays (LSE: BARC) has started 2024 with a boom. The share price is up 23% year to date, which makes a change from the dreary performance of the two years prior. I thought it was time to see if this giant is worth a place in my Stocks and Shares ISA.

The share price fell over 15% in 2022 and 3% in 2023. As it tends to go in the investing world, just when things start to look bleak, the company catches markets off-guard.

Headline earnings

Barclays surprised markets in February when it announced a plan to return £10bn to shareholders over the next three years.

The pledge from the Barclays CEO included reorganising the bank into five divisions, with mostly new management in charge. The bank is doing this to improve its performance, as it has faced criticism in recent years for relying too much on investment banking.

The bank plans to return a total of £10bn to its shareholders through share buybacks and dividends, well above the £6.1bn given to shareholders between 2019 and 2022.

The ambitious forecast from Barclays was a nice surprise, but markets also perceived it as attainable. They bought into the plans, causing the shares to rise 20% in the following three weeks.

Key stats

There are some key fundamental stats that highlight Barclay’s good value. The company has a forward price-to-earnings (P/E) ratio of just 6.1x and a fair book value of 0.4x (vs a theoretical target of 1). The P/E isn’t extensively cheaper than peers such as Lloyds Banking Group (7.8x) or NatWest Group (6.9x), but it is much lower than US banking giants JPMorgan Chase (11.8x) and Bank of America (11.3x).

The company also provides a stronger dividend yield at 4.3% than the FTSE 100 average yield.

When I combine the planned fundamental business changes with an attractive current valuation, Barclays starts to really appeal to me.

Upcoming earnings

The next Barclays earnings report is very timely for this article, as it is due imminently. Revenue estimates have been trimmed in the run-up to the release, and earnings are likely to be lower than the bumper 2023 numbers. Barclays is expected to report a pre-tax profit of £2.2bn, down from £2.6bn reported in Q1 2023.

But last week, Barclays maintained a broadly optimistic view on the earnings outlook for UK banks in the coming quarters, mentioning a recovery in net interest margins (NIM).

Risks

One risk that I can highlight about Barclays — and this applies to any company that announces a restructuring — is that I am at the company’s will to deliver on its promise.

A successful execution can definitely be the catalyst to turn Barclays around, and I’d be patting myself on the back for buying into it. But if bumps and hurdles start to present themselves in the coming months, investors will start to price the positives of a restructuring out of the shares.

Overall

I like the industry, the valuations, and the pledge to return value to shareholders enough to take on the risk of buying Barclays. And there’s no better time than a fresh new tax year to start finding these new additions.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

JPMorgan Chase is an advertising partner of The Ascent, a Motley Fool company. Bank of America is an advertising partner of The Ascent, a Motley Fool company. Jesse Williamson does not currently own shares in any of the companies mentioned. The Motley Fool UK has recommended Barclays Plc and Lloyds Banking Group Plc. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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