Earnings Growth
Looking at the next two years, Barclays (LSE: BARC) (NYSE: BCS.US) is forecast to deliver earnings growth that is, quite simply, stunning. For example, the bank’s bottom line is due to rise by 27% this year, followed by further growth of 18% in 2016. That’s considerably higher than the majority of its banking peers and is also between three and five times the expected market growth rate. Such upbeat prospects could improve investor sentiment and push Barclays’ share price higher.
Poor Sentiment
On the topic of sentiment, it is clearly relatively low for Barclays at the present time. Much of this is due to the continuing allegations of wrongdoing that have dominated the bank’s news flow in recent years, with PPI claims and dark pool trading activities being notable examples. Clearly, these negative items could continue in the short to medium term but, in the long run, it is likely that Barclays will come through them and put in place the right systems and procedures (if they are not already in place). And, while sentiment is at a low ebb, it could be an opportune moment to buy shares in the bank.
Valuation
As a result of poor sentiment and top notch growth prospects, Barclays trades on a highly appealing valuation. For example, it has a price to earnings growth (PEG) ratio of just 0.3, which indicates that its shares offer growth at a very reasonable price. As a result of this, Barclays could see its share price rise significantly over the next couple of years – especially when you consider that the UK and world economy could surprise on the upside.
Improving Returns
Although Barclays continues to rationalise its business and the next couple of years are likely to see further changes in this regard, it continues to target return on equity for its core business of over 12% through to 2016. This seems to be a realistic target and shows that the bank is making progress in terms of reducing its cost base and also improving income streams. Certainly, there is still some way to go in this regard, but Barclays appears to be moving in the right direction and has a relatively bright future when it comes to generating a consistent return for its shareholders.
Dividends
Although Barclays currently yields 4%, it is still rather mean when it comes to the proportion of profit that it pays out as a dividend. For example, in the current year it is expected to pay out just 37% of profit as a dividend but, looking ahead, this level should increase and this is likely to mean higher dividends for investors in the bank. And, with Barclays due to report a significant rise in earnings (as mentioned) over the next two years, a combined higher payout ratio and improving bottom line could see the stock yield well over 5% as early as 2016.
