Barclays‘ (LSE: BARC) shares are up 130% over the past five years. How about a further 40% in the near future? Someone in the City thinks it could be on!
The high end of analysts’ targets currently sits at 590p, almost bang on 40% ahead of the price early Friday (24 April). We do however, need to be aware this is just one firm’s opinion, and others differ widely. In fact, at the bottom of the range we see opinions suggesting no movement at all. And we should take them all into account.
We should never make an investing decision on just one target like this. But it can be worth examining it to see if we think it’s reasonable.
Bank of England caution
There’s also a breaking cause for concern. Bank of England deputy governor Sarah Breeden has told the BBC the BoE thinks share prices are too high and expects world stock markets to fall.
She said: “There’s a lot of risk out there and yet asset prices are at all-time highs. We expect there will be an adjustment at some point.” Contributing factors include the risk of a major macroeconomic shock, and very high valuations for some stocks including AI.
Why might it be a threat for Barclays? Whenever there’s a financial crunch, the banks always seem to suffer, don’t they? And Barclays, with its international and corporate banking exposure, might face more pain than others.
Investors always need to approach the stock market with the risks in mind. We’ve had stock market crashes before, and we have to expect them again. But through it all, UK shares have beaten other forms of investment hands down — over the long term, that’s for more than a century.
Barclays prospects
Forecasts suggest Barclays’ earnings per share could jump nearly 70% between 2025 and 2028. There’s not much of a dividend right now, with a yield of only 2% on the cards. But that kind of earnings growth would cover projected dividends out to 2028 by more than three times. If the analysis is right, we could see plenty of room for further cash returns.
At FY 2025 time in February, CEO CS Venkatakrishnan said: “Our aim is to secure sustainably higher returns through to 2028 and beyond, delivering Group RoTE of greater than 14% in 2028 and greater than £15bn of capital distributions to shareholders between 2026 and 2028.“
If the anticipated earnings growth comes off, Barclays’ price-to-earnings (P/E) ratio could plunge as low as six by 2028. A 40% share price rise would push it close to 8.5 — based on current prices.
Eyes peeled
Is our most optimistic broker correct to see this potential valuation as too cheap? Well, it depends on what happens in the next three years. And looking back on just the past three months, I fear that might be a lot.
I do think the main threats right now — to Barclays shares, and financial stocks in general — are economic, political and global. But on the valuations we’re seeing here, Barclays surely has to be a stock to consider for the long term. Q1 results are due on 28 April.
