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 Barclays (LSE: BARC) (NYSE: BCS.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 Barclays’ share price has the potential to push higher, is to take a look at the market’s current opinion towards the company.
Unfortunately at present, it would appear that the market is somewhat doubtful Barclays’ future plans, as the bank closes branches, cuts jobs, remains embroiled in the Libor scandal and surprisingly, increases bankers’ bonuses.
Further, investors are concerned about Barclays’ sliding profits. The bank’s full-year 2013 adjusted pre-tax profit declined 32%, led by a 9% slump in investment banking income and a 7% rise in operating expenses. Some investors are now wondering if the bank can return to growth.
Upcoming catalysts
Still, Barclays’ management has big plans for growth and these should start to take hold over the next year or so.
Indeed, the bank’s operating costs should fall this year as management cuts 10,000 to 12,000 jobs, including 7,000 posts within the UK. What’s more, Barclays continues to progress with “Project Transform”, which is designed to streamline operations, increase profits and improve the bank’s reputation.
Further, after a rights issue last year to boost the bank’s capital cushion, Barclays now appears well capitalised. Specifically, at the end of 2013 Barclays had core tier 1 capital ratio of 13.2%, up from 10.8% in the same period the year before. Hopefully, this larger capital buffer means that the bank will not need to call on investors again for extra cash in near the future.
Overall, 2013 was a year of unprecedented change for Barclays and it would seem as if 2014 is going to be another year of transformational activity at the bank. However, after the bank and its management have finished streamlining the business, profits should start to rise again.
Valuation
Unsurprisingly due to slumping profits, Barclays currently trades at a rock bottom valuation. In particular, Barclays’ shares currently trade at a forward P/E of on 8.7, falling to 7.1 for 2015. In comparison, the wider banking sector trades at an average P/E of 24.
Moreover, City forecasts currently predict that Barclays’ earnings will expand 67% during 2014 and then an additional 22% during 2015. This rapid rate of growth implies that Barclays’ shares currently offer growth at a reasonable price as they trade at a PEG ratio of 0.13 for 2014.
Foolish summary
So overall, based on Barclays’ low valuation, cost cutting and robust balance sheet, I feel that there is still time to buy Barclays at current levels.
