Right now I’m comparing some of the most popular companies in the FTSE 100 with their sector peers in an attempt to establish which one is the more attractive investment.
Today I’m looking at Barclays (LSE: BARC) (NYSE: BCS.US).
Comparing Barclays to the rest of its sector is, to some extent misleading. In particular, Barclays’ closest UK peers, Lloyds Banking and RBS are still recovering from the financial crisis.
In addition, Barclays’ international peers, HSBC and Standard Chartered are more internationally focused than Barclays, so a comparison would be misleading.
Still, as one of the UK’s main high-street banks it would only be fair to compare Barclays to other well-known high-street lenders. Therefore, I will be comparing Barclays to Lloyds Banking and RBS.
Barclays trades at a historic P/E of 7.8, lower than the banks sector average P/E of 16.5. That said, City of London analysts expect Barclays’ earnings to fall 25% this year, which indicates that the company is trading at a forward P/E of 10, still cheap compared to the banks sector.
In comparison, close peers Lloyds Banking and RBS trade at a forward P/E of 14.2 and 19.6 respectively.
Barclays’ low valuation in relation to that of its peers is surprising, as the bank has outperformed its peer group during the last five years. However, the bank’s performance has been called into question recently after it was discovered that Barclays did not meet stringent capital rules set by the Prudential Regulation Authority.
Having said that, thanks to the recent rights issue and internal restructuring, Barclays’ management has stated that the bank is in line to meet capital requirements by June next year.
Still, Barclays’ capital position is still better than that of both Lloyds Banking and RBS. Indeed, based on data released in June, the Prudential Regulation Authority’s figures placed Barclays capital shortfall at £3 billion, meanwhile Lloyds Banking and RBS had a capital shortfall of £13.6 billion and £8.6 billion respectively.
What’s more, City analysts predict that Barclays’ earnings per share are set to grow faster than those of its peer during the next two years, with growth of 25% pencilled in.
On the dividend front, Barclays lords it over its struggling peers. In particular, City analysts predict that the company will offer investors a 10.6p per share dividend during 2014, a yield of 4.1% at current levels.
In comparison, RBS is only expected to offer a token dividend of 2p per share during 2014. That said, Lloyds Banking is predicted to payout a respectable 2.3p per share during 2014, a yield of 2.9% at current levels.
All in all, despite recent concerns over the bank’s capital adequacy, Barclays looks well placed to outperform its close peers.
So overall, I feel that Barclays is a much stronger share than its peers.
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In the meantime, please stay tuned for my next FTSE 100 verdict.
> Rupert does not own any share mentioned in this article. The Motley Fool owns shares in Standard Chartered.