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Are Analysts’ Forecasts For Barclays PLC Too Good To Be True?

According to current City forecasts, Barclays (LSE: BARC) is one of the FTSE 100’s fastest growing companies.

Analysts are forecasting earnings per share growth of 45% this year, followed by 17% during 2016. That’s the kind of growth that’s more suited to a tech company, not one of the UK’s largest banks.

However, looking through Barclays’ full-year 2014 results release, published at the beginning of March, there is reason to believe that the bank could meet these lofty forecasts. 

Making progress

Unlike many of its banking sector peers, which are struggling with rising costs and falling returns on equity (a key measure of bank profitability), Barclays’ business is improving across the board.

For example, during 2014 Barclays’ Personal and Commercial Bank (PCB) saw income rise 1% to £8.8bn. Bad debts fell 22% to £0.5bn, the cost income ratio fell to 62% (after restructuring charges) and profits jumped 29% to £2.9bn. Moreover, return on tangible equity at the bank’s African arm increased to 12.9% during 2014, from the previously reported 11.3%. Barclaycard delivered a 6% rise in income. 

What’s more, Barclays’ non-core business — the bank’s division responsible for selling off non-core, toxic assets — reported reduced losses of £1.2bn, down from £1.6bn as reported during 2013. 

All of these factors helped Barclays report adjusted profits of £5.5bn for 2014, ahead of analysts’ estimates, which were calling for adjusted profits of £5.3bn. Unfortunately, the company’s unadjusted net income missed estimates.

And Barclays’ management expects to report a similar performance for 2015 and 2016. The group continues to slash costs as part of its multi-year ‘Project Transform’ and further non-core asset disposals are expected.

Additionally, Barclays’ troubled investment bank reported an uptick in business during the fourth quarter of last year. Management believes that this should continue throughout 2015, which should only boost growth. 

Can the bank be trusted?

Unfortunately, while Barclays’ underlying business is improving, the bank has consistently failed to meet optimistic City forecasts in the past. For the past four years Barclays’ reported unadjusted net income has missed City expectations by between 10% and 35% every year.

There’s no reason to believe that the bank will reverse this trend any time soon. Even though Barclays is making progress, I think it’s unlikely the company will meet analysts’ forecasts this year. 

With this being the case, it looks as if analysts’ forecasts for Barclays are too good to be true.

Trust is important 

It's difficult to trust Barclays when the company has made so many mistakes in the past.

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Rupert Hargreaves 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.