NatWest (LSE: NWG) shares have been flying of late. Like many stocks in the banking sector, NatWest was in the doldrums for the better part of two decades. But investor sentiment has gone through something of a sea change. And the buyers flooding into Natwest pushed the share price up by 164% in the last two years.
Have British banks turned the corner since the debacle of 2008? Is the financial sector of London set for a terrific run? Will banks like Natwest be brilliant buys for investors to consider? The answer to all those questions is yes, by the sounds of it from a few folks…
Thumbs up
The people I am referring to are stock market analysts – the researchers who go in-depth on specific stocks and give judgements both good and bad. In the case of Natwest, many have got their thumbs firmly in the ‘up’ position.
Of the 19 analysts covering the stock, not one has it down has a Sell, and the majority say either Buy or Outperform.
What do they predict for the next 12 months? To start with, the forecast dividend is 5.90% – a huge jump on last year’s value. Dividend forecasts tend to be quite reliable for the banking sector, though they are never guaranteed.
On top of that, we might get a bump in the share price too. The consensus is for a 20.6% increase in the next year, while one analyst is confident enough to plump for a price target 39.8% higher than its current value.
In terms of cash, that could mean £1,000 in NatWest shares turns into £1,249 in a year’s time if the forecasts are close to the mark. On the high end, investors might even be looking at £1,457. These kind of big increases inside a single year are the stuff investors dream of.
A buy?
Does the evidence support such optimistic predictions? I think so. Even after the share price went on a tear, the valuation looks very reasonable. The price-to-earnings (P/E) ratio is a shade under nine at the moment – nearly half the FTSE 100 average. This shows the surge has been driven be earnings growth, a very good sign.
Earnings are set to increase in the years ahead. There is the risk of this simply being a purple patch for bumper earnings, however. If we see falling interest rates (which help banks increase their margins) and a flatlining UK economy (NatWest is highly exposed domestically compared to other banks) then that could put the brakes on here.
To sum up? Analyst forecasts are best estimates based on currently available information. In other words: they are not perfect. But I think the general bullishness is a good sign for NatWest shares. I’d say they’re worth considering.
