Barclays PLC Could Be Worth 350p


Despite starting off well, 2014 has been a huge disappointment for investors in Barclays (LSE: BARC) (NYSE: BCS.US). Indeed, shares in the bank have fallen by almost 20% since the turn of the year and have massively underperformed the wider index, which is down just 2% over the same time period. However, Barclays could be a superb buy right now, and shares in the bank could be worth as much as 350p. Here’s why.

Huge Growth Potential

Although the UK banking sector is likely to experience more lumps and bumps in the months and years ahead, the bottom lines of banks such as Barclays are all set to increase at a rapid rate. Indeed, Barclays’ earnings per share (EPS) is due to be 26.8p in 2015, which is just over 60% higher than it was in 2013. This is a huge jump in earnings in a very short space of time – especially when you consider that Barclays has not been bailed out by the government and has remained profitable over the last five years.

Potential Not Priced In

Indeed, the market does not appear to be pricing in such strong growth prospects. For instance, Barclays currently trades on a trailing price to earnings (P/E) ratio of just 13.1 times its 2013 earnings, with shares currently being priced at 218p each. However, with earnings set to increase dramatically before the end of 2015, even maintaining this P/E ratio would mean shares trading at 350p each. That’s a 60% rise from their current level and, although Barclays must deliver strong growth to justify it, even if earnings grow by only half their expected rate, it could still mean a gain of 30% in just a couple of years.

Income Potential

Further evidence of the potential for Barclays’ share price to move higher can be seen in respect of its yield potential. Although it yields just 3.3% right now, this is expected to rise to 4.5% next year and move even higher the year after, as Barclays experiences higher profits and a higher payout ratio. Indeed, it is unlikely that the market will allow Barclays to trade at such a sky-high yield for long, which makes a share price of 350p even more realistic over the medium term.

Looking Ahead

As mentioned, Barclays may yet experience more lumps and bumps as it (and the wider sector) continues to overcome the worst banking crisis in living memory. However, Barclays has huge growth potential that does not yet appear to be reflected in its share price. As such, it could make gains of 60% over the medium term, with now seemingly the perfect time to buy a stake in the bank.

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Peter Stephens owns shares of Barclays. The Motley Fool has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.