Is Barclays PLC A Classic Value Trap?

Shares in British banking behemoth Barclays (LSE: BARC) (NYSE: BCS.US) have endured a tumultuous journey during 2014, as waves of choppy macroeconomic news, combined with numerous operational difficulties at the firm, has weighed heavily upon the stock.

Indeed, Barclays has conceded almost a fifth from January’s high of 296.5p per share, although prices have since recovered and are down just 11% from levels seen at the turn of the year.

A blistering all-round bargain

But for many so-called “value hunters”, now could be a terrific time to pile into Barclays as — on paper at least — the bank offers rewards terrific growth and dividend prospects at a snip.

Following on from five years of extreme earnings choppiness, City analysts expect to see Barclays’ bottom line expand 20% in 2014 and 30% in 2015, in turn creating P/E multiples of just 11.4 times and 9.3 times for these years. Any reading around or below 10 times is considered a steal.

And on the back of this strong earnings outlook, Barclays is expected to put a rocket under the dividend in the near future. An 2% lift in the full-year payout is pencilled in for 2014, to 6.6p per share, producing a respectable-if-unexciting yield of 2.7%. But a stonking 43% forecasted increase for 2015, to 9.5p, drives the yield to a delectable 3.9%.

Legal fees cast a shadow

But of course all in the garden is not rosy, and Barclays has a number of issues which could put these projections under pressure. Most notably the bank is facing a growing legal bill for the mis-selling of PPI and interest rate swaps, a problem for which the bank squirreled away another £170m during the third quarter to cover potential costs.

On top of this, Barclays set aside £500m for the investigation into the rigging of foreign exchange rates, a case which is yet to be resolved. And with the firm in court over allegations it gave more active users of its ‘dark pool’ trading platform an advantage over other traders, the cost of previous misconduct is likely to continue to rise.

Elsewhere, Barclays’ Investment Bank also continues to underwhelm significantly and consequently worry investors, and pre-tax profits here slumped 38% during July-September to £1.3bn.

… but progress elsewhere promises riches

Still, I believe that ongoing work at Barclays leaves it in good stead to deliver resplendent returns in coming years. Firstly, the bank’s Transform restructuring package is slashing the cost base across the business whilst also improving its presence in the increasingly-popular field of internet banking. And hefty restructuring is also slashing the size of its risky and poorly-performing Investment Bank.

And Barclays has seen revenues surge at its Personal & Corporate Banking and Barclaycard arms as a resurgent UK economy has boosted its retail operations. And with the bank expanding its presence in the emerging regions of Africa, I believe that Barclays is in great shape to deliver stunning shareholder returns well into the future.

But whether or not you fancy planting your cash in Barclays, I strongly recommend you check out this brand new and exclusive report that singles out even more FTSE 100 winners to really jump start your investment income.

Our “5 Dividend Winners To Retire On” wealth report highlights a selection of incredible stocks with an excellent record of providing juicy shareholder returns. Among our picks are top retail, pharmaceutical and utilities plays that we are convinced should continue to provide red-hot dividends. Click here to download the report -- it's 100% free and comes with no further obligation.

Royston Wild has no position in any shares mentioned. The Motley Fool UK 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.