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How Much Higher Can Barclays PLC Go?

Right now I’m looking at some of the most popular companies in the FTSE 100 and wider market to try and establish in which direction their shares are likely to move.

Today I’m looking at Barclays PLC (LSE: BARC) (NYSE: BCS.US) to ascertain if its share price will continue to rise.

Market sentiment

At present it seems as if the market is excited about Barclays’ future, as the bank embarks on a strategic overhaul of its investment banking business and European retail operations.

Indeed, during the last month, Barclays’ shares have jumped nearly 10% after the bank announced plans to axe 19,000 jobs over the next three years and set up a “bad bank”.

In particular, Barclays’ new bad bank will eventually sell or run down £116bn of non-core operations. These non-core operations include, £90bn of investment bank assets and all of its underperforming European retail banking operations.

The new slim-line Barclays will focus on the bank’s existing core businesses, including Barclays UK retail, Africa, Barclaycard operations and the surviving investment bank operations.

Unfortunately, this restructuring will cost Barclays £800m, which is on top of the original £2.7bn restructuring costs it announced in February 2013 that relates to ‘Project Transform’.

However, Project Transform has already yielded results, with operating costs falling around 20% year on year during the first quarter. Additionally, at the end of the first quarter the bank announced that retail banking profit rose 20% to £360m.

City expectations

And the City is pleased about Barclays’ transformation plans, as 21 out of 29 analysts covering the bank rate it a ‘buy’.

Further, current City forecasts predict that Barclays will report earnings per share of 26.3p for 2014, placing the bank’s shares on a forward P/E of 9.8 at current levels. For 2015, City forecasts are calling for Barclays to report earnings of 32.6p per share.

Barclays’ is also seeking to please dividend hunters — the bank’s dividend yield is forecast to hit 3.4% for 2014,  and then 4.7% in 2015. 

Possible headwinds

Still, there are several headwinds that could still have an impact on Barclays.

For a start, Barclays remains under investigation by global regulators looking into the possible manipulation of foreign exchange trading practices. The bank also remains exposed to the fortunes of the wider economy and under the scrutiny of the Prudential Regulation Authority, which is keeping an eye on the financial health of the bank.

Foolish summary

So overall, based on the bank’s strategic plan and City forecasts for growth, I feel that Barclays’ shares will continue to rise. 

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In the meantime, please stay tuned for my next verdict.

Rupert does not own any share mentioned within this article.