Why Are Forecasts For Barclays PLC, Lloyds Banking Group PLC And HSBC Holdings plc Still Falling?

Our top FTSE 100 banks have been working hard on their liquidity measures, and it’s been paying off — they’re all looking increasingly healthy and better able to withstand the next downturn. Forecasts will surely be improving then?

No, not a bit. In fact, at Barclays (LSE: BARC)(NYSE: BCS.US), we’ve seen 2015 forecasts steadily cut back in recent months. Six months ago the great and good of the City were telling us to expect earnings per share (EPS) of 27p this year. Today that’s been scaled back all the way to 25p, with the latest cut coming only this week. For 2016 we only have a few forecasts, but even then we’ve seen a cut over the past month.

Still looking cheap

On the upside, even the reduced EPS consensus suggests a 45% boost this year, putting the 244p shares on a P/E of under 10 with a 3.5% dividend yield expected. And 2016 forecasts drop the P/E to 8.5 and lift the dividend to 4.7% — and there’s a very strong Buy consensus among the brokers. Despite relative pessimism of late, Barclays still looks cheap to me.

The same goes for Lloyds Banking Group (LSE: LLOY)(NYSE: LYG.US), which I reckon is a bargain at 78.9p with the shares on forward P/E multiples of a little under 10 this year and next, and with the dividend predicted to yield 5.3% by 2016 after having been reinstated in the second half of 2014.

Another bargain

That’s despite EPS forecasts having been cut from 8.25p six months ago to as low as 8p today, with the 2016 forecast barely higher. But it’s earnings turnaround time, and Lloyds is looking increasingly good for the long term.

The brokers agree, with another very firm Buy consensus.

Finally HSBC Holdings (LSE: HSBA), which possibly has more reason to fear the future than the other two, with its major exposure to China and the Far East.

The share price dipped a little ahead of this month’s results, and it’s now down 4% over the past year to 578p, but the results were pretty much in line with expectations and a 5.6% full-year dividend yield was confirmed.

EPS predictions for 2015 are down from 59.4p a month ago to 55.3p, which is a 7% shave, but that would still bring in 10% growth from the year just reported. With forward P/E around 10 for the next two years and dividends up around 6%, HSBC doesn’t look expensive — providing the feared Chinese crash doesn’t materialise. 

The best?

For me, I reckon Barclays and Lloyds show the best combination of cheap valuation and relatively low risk, and I’d place them both ahead of HSBC in the desirability stakes right now.

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Alan Oscroft has no position in any shares mentioned. The Motley Fool UK has recommended HSBC Holdings. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.